UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ |
Commission File Number 001-37389
APPLE HOSPITALITY REIT, INC.
(Exact name of registrant as specified in its charter)
Virginia | 26-1379210 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
814 East Main Street Richmond, Virginia | 23219 | |
(Address of principal executive offices) | (Zip Code) |
(804) 344-8121
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Shares, no par value | APLE | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☐ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of registrant’s common shares outstanding as of November 1, 2017: 223,060,840
Form 10-Q
Page Number | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. | 3 | |||
3 | ||||
4 | ||||
5 | ||||
Consolidated Statements of Cash Flows | 6 | |||
7 | ||||
Item 2. | 19 | |||
Item 3. | 35 | |||
Item 4. | 35 | |||
PART II. OTHER INFORMATION | ||||
Item 1. | 36 | |||
Item | 36 | |||
Item | 36 | |||
Item 6. | 37 | |||
38 | ||||
This Form 10-Q includes references to certain trademarks or service marks. The AC Hotels by Marriott®, Aloft Hotels®, Courtyard by Marriott®, Fairfield Inn by Marriott®, Fairfield Inn & Suites by Marriott®, Marriott® Hotels, Renaissance® Hotels, Residence Inn by Marriott®, SpringHill Suites by Marriott® and TownePlace Suites by Marriott® trademarks are the property of Marriott International, Inc. or one of its affiliates. The Embassy Suites by Hilton®, Hampton by Hilton®, Hilton® Hotels & Resorts, Hilton Garden Inn®, Home2 Suites by Hilton®, Homewood Suites by Hilton® and Homewood SuitesMotto by Hilton® trademarks are the property of Hilton Worldwide Holdings Inc. or one of its affiliates. The Hyatt®, Hyatt House® and Hyatt Place® trademarks are the property of Hyatt Hotels Corporation or moreone of its affiliates. For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above referenced terms are used.
PART I. FINANCIAL INFORMATION
Apple Hospitality REIT, Inc.
(in thousands, except share data)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment in real estate, net of accumulated depreciation of $686,787 and $557,597, respectively | $ | 4,742,590 | $ | 4,823,489 | ||||
| Assets held for sale | 40,626 | 39,000 | ||||||
| Restricted cash-furniture, fixtures and other escrows | 30,299 | 29,425 | ||||||
| Due from third party managers, net | 52,354 | 31,460 | ||||||
| Other assets, net | 48,018 | 56,509 | ||||||
| Total Assets | $ | 4,913,887 | $ | 4,979,883 | ||||
| Liabilities | ||||||||
| Revolving credit facility | $ | 216,700 | $ | 270,000 | ||||
| Term loans | 655,988 | 570,934 | ||||||
| Mortgage debt | 432,783 | 497,029 | ||||||
| Accounts payable and other liabilities | 104,467 | 124,856 | ||||||
| Total Liabilities | 1,409,938 | 1,462,819 | ||||||
| Shareholders' Equity | ||||||||
| Preferred stock, authorized 30,000,000 shares; none issued and outstanding | 0 | 0 | ||||||
| Common stock, no par value, authorized 800,000,000 shares; issued and outstanding 223,060,840 and 222,938,648 shares, respectively | 4,455,390 | 4,453,205 | ||||||
| Accumulated other comprehensive income | 5,218 | 4,589 | ||||||
| Distributions greater than net income | (956,659 | ) | (940,730 | ) | ||||
| Total Shareholders' Equity | 3,503,949 | 3,517,064 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 4,913,887 | $ | 4,979,883 | ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Investment in real estate, net of accumulated depreciation and amortization of |
| $ | 4,548,787 |
|
| $ | 4,610,962 |
|
Cash and cash equivalents |
|
| 35,366 |
|
|
| 4,077 |
|
Restricted cash-furniture, fixtures and other escrows |
|
| 33,697 |
|
|
| 39,435 |
|
Due from third-party managers, net |
|
| 60,801 |
|
|
| 43,331 |
|
Other assets, net |
|
| 85,391 |
|
|
| 74,909 |
|
Total Assets |
| $ | 4,764,042 |
|
| $ | 4,772,714 |
|
|
|
|
|
|
| |||
Liabilities |
|
|
|
|
|
| ||
Debt, net |
| $ | 1,373,268 |
|
| $ | 1,366,249 |
|
Finance lease liabilities |
|
| 111,943 |
|
|
| 112,006 |
|
Accounts payable and other liabilities |
|
| 104,920 |
|
|
| 116,064 |
|
Total Liabilities |
|
| 1,590,131 |
|
|
| 1,594,319 |
|
|
|
|
|
|
| |||
Shareholders’ Equity |
|
|
|
|
|
| ||
Preferred stock, authorized 30,000,000 shares; none issued and outstanding |
|
| - |
|
|
| - |
|
Common stock, no par value, authorized 800,000,000 shares; issued and outstanding |
|
| 4,580,193 |
|
|
| 4,577,022 |
|
Accumulated other comprehensive income |
|
| 37,411 |
|
|
| 36,881 |
|
Distributions greater than net income |
|
| (1,443,693 | ) |
|
| (1,435,508 | ) |
Total Shareholders’ Equity |
|
| 3,173,911 |
|
|
| 3,178,395 |
|
|
|
|
|
|
| |||
Total Liabilities and Shareholders’ Equity |
| $ | 4,764,042 |
|
| $ | 4,772,714 |
|
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
(Unaudited)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Room | $ | 302,298 | $ | 255,269 | $ | 877,974 | $ | 698,759 | ||||||||
| Other | 22,628 | 21,202 | 71,581 | 59,835 | ||||||||||||
| Total revenue | 324,926 | 276,471 | 949,555 | 758,594 | ||||||||||||
| Expenses: | ||||||||||||||||
| Operating | 79,975 | 69,082 | 235,474 | 187,370 | ||||||||||||
| Hotel administrative | 24,842 | 20,866 | 74,895 | 57,921 | ||||||||||||
| Sales and marketing | 25,488 | 21,329 | 75,867 | 59,244 | ||||||||||||
| Utilities | 12,036 | 10,543 | 31,982 | 25,862 | ||||||||||||
| Repair and maintenance | 12,199 | 10,478 | 36,394 | 29,167 | ||||||||||||
| Franchise fees | 13,974 | 11,834 | 40,611 | 32,212 | ||||||||||||
| Management fees | 11,315 | 9,205 | 33,072 | 26,189 | ||||||||||||
| Property taxes, insurance and other | 17,598 | 14,787 | 52,346 | 40,315 | ||||||||||||
| Ground lease | 2,831 | 2,615 | 8,486 | 7,587 | ||||||||||||
| General and administrative | 5,350 | 2,623 | 18,255 | 12,511 | ||||||||||||
| Transaction and litigation costs (reimbursements) | 0 | 36,452 | (2,586 | ) | 37,861 | |||||||||||
| Loss on impairment of depreciable real estate assets | 0 | 5,471 | 7,875 | 5,471 | ||||||||||||
| Depreciation | 44,110 | 37,343 | 131,770 | 104,651 | ||||||||||||
| Total expenses | 249,718 | 252,628 | 744,441 | 626,361 | ||||||||||||
| Operating income | 75,208 | 23,843 | 205,114 | 132,233 | ||||||||||||
| Interest and other expense, net | (12,024 | ) | (10,156 | ) | (35,590 | ) | (28,519 | ) | ||||||||
| Gain (loss) on sale of real estate | (157 | ) | 0 | 15,983 | 0 | |||||||||||
| Income before income taxes | 63,027 | 13,687 | 185,507 | 103,714 | ||||||||||||
| Income tax benefit (expense) | (203 | ) | 7 | (712 | ) | (616 | ) | |||||||||
| Net income | $ | 62,824 | $ | 13,694 | $ | 184,795 | $ | 103,098 | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Interest rate derivatives | 259 | 4,261 | 629 | (7,934 | ) | |||||||||||
| Comprehensive income | $ | 63,083 | $ | 17,955 | $ | 185,424 | $ | 95,164 | ||||||||
| Basic and diluted net income per common share | $ | 0.28 | $ | 0.07 | $ | 0.83 | $ | 0.57 | ||||||||
| Weighted average common shares outstanding - basic and diluted | 223,057 | 190,563 | 223,052 | 180,004 | ||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Room |
| $ | 327,121 |
|
| $ | 315,940 |
|
| $ | 943,684 |
|
| $ | 866,286 |
|
Food and beverage |
|
| 13,576 |
|
|
| 11,870 |
|
|
| 42,032 |
|
|
| 32,353 |
|
Other |
|
| 17,563 |
|
|
| 13,340 |
|
|
| 45,628 |
|
|
| 40,657 |
|
Total revenue |
|
| 358,260 |
|
|
| 341,150 |
|
|
| 1,031,344 |
|
|
| 939,296 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Hotel operating expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating |
|
| 85,829 |
|
|
| 81,320 |
|
|
| 249,403 |
|
|
| 221,715 |
|
Hotel administrative |
|
| 29,172 |
|
|
| 27,516 |
|
|
| 85,933 |
|
|
| 78,711 |
|
Sales and marketing |
|
| 30,770 |
|
|
| 28,533 |
|
|
| 89,406 |
|
|
| 78,494 |
|
Utilities |
|
| 13,797 |
|
|
| 13,383 |
|
|
| 36,271 |
|
|
| 34,226 |
|
Repair and maintenance |
|
| 16,336 |
|
|
| 15,632 |
|
|
| 48,452 |
|
|
| 43,468 |
|
Franchise fees |
|
| 15,895 |
|
|
| 14,949 |
|
|
| 45,407 |
|
|
| 41,015 |
|
Management fees |
|
| 11,911 |
|
|
| 11,734 |
|
|
| 34,516 |
|
|
| 31,955 |
|
Total hotel operating expense |
|
| 203,710 |
|
|
| 193,067 |
|
|
| 589,388 |
|
|
| 529,584 |
|
Property taxes, insurance and other |
|
| 21,678 |
|
|
| 19,052 |
|
|
| 61,347 |
|
|
| 56,510 |
|
General and administrative |
|
| 11,079 |
|
|
| 10,271 |
|
|
| 34,640 |
|
|
| 30,216 |
|
Depreciation and amortization |
|
| 45,498 |
|
|
| 45,135 |
|
|
| 137,398 |
|
|
| 135,781 |
|
Total expense |
|
| 281,965 |
|
|
| 267,525 |
|
|
| 822,773 |
|
|
| 752,091 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gain on sale of real estate |
|
| - |
|
|
| 1,785 |
|
|
| - |
|
|
| 1,785 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating income |
|
| 76,295 |
|
|
| 75,410 |
|
|
| 208,571 |
|
|
| 188,990 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest and other expense, net |
|
| (17,470 | ) |
|
| (14,933 | ) |
|
| (50,973 | ) |
|
| (44,785 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income before income taxes |
|
| 58,825 |
|
|
| 60,477 |
|
|
| 157,598 |
|
|
| 144,205 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Income tax expense |
|
| (313 | ) |
|
| (1,331 | ) |
|
| (874 | ) |
|
| (1,712 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income |
| $ | 58,512 |
|
| $ | 59,146 |
|
| $ | 156,724 |
|
| $ | 142,493 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate derivatives |
|
| 1,412 |
|
|
| 16,024 |
|
|
| 530 |
|
|
| 53,862 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Comprehensive income |
| $ | 59,924 |
|
| $ | 75,170 |
|
| $ | 157,254 |
|
| $ | 196,355 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic and diluted net income per common share |
| $ | 0.26 |
|
| $ | 0.26 |
|
| $ | 0.68 |
|
| $ | 0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted average common shares outstanding - basic and diluted |
|
| 228,877 |
|
|
| 228,991 |
|
|
| 229,103 |
|
|
| 228,992 |
|
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
(Unaudited)
(in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 184,795 | $ | 103,098 | ||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
| Depreciation | 131,770 | 104,651 | ||||||
| Loss on impairment of depreciable real estate assets | 7,875 | 5,471 | ||||||
| Gain on sale of real estate | (15,983 | ) | 0 | |||||
| Other non-cash expenses, net | 5,372 | 4,806 | ||||||
Changes in operating assets and liabilities, net of amounts acquired or assumed with acquisitions: | ||||||||
| Increase in due from third party managers, net | (20,883 | ) | (14,350 | ) | ||||
| Decrease (increase) in other assets, net | 8,507 | (1,014 | ) | |||||
| Increase (decrease) in accounts payable and other liabilities | (20,944 | ) | 35,309 | |||||
| Net cash provided by operating activities | 280,509 | 237,971 | ||||||
| Cash flows from investing activities: | ||||||||
| Cash consideration in Apple Ten merger | 0 | (93,590 | ) | |||||
| Acquisition of hotel properties, net | (56,794 | ) | (23,994 | ) | ||||
| Deposits and other disbursements for potential acquisitions | (1,810 | ) | 0 | |||||
| Capital improvements | (41,370 | ) | (47,523 | ) | ||||
| Decrease (increase) in capital improvement reserves | (1,351 | ) | 2,459 | |||||
| Net proceeds from sale of real estate | 28,374 | 0 | ||||||
| Net cash used in investing activities | (72,951 | ) | (162,648 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchases of common shares | 0 | (361 | ) | |||||
| Repurchases of common shares to satisfy employee withholding requirements | (432 | ) | (459 | ) | ||||
| Equity issuance costs | 0 | (1,176 | ) | |||||
| Distributions paid to common shareholders | (200,716 | ) | (161,940 | ) | ||||
| Net proceeds from (payments on) revolving credit facility | (53,300 | ) | 187,300 | |||||
| Payments on extinguished credit facility | 0 | (111,100 | ) | |||||
| Proceeds from term loans | 85,000 | 150,000 | ||||||
| Proceeds from mortgage debt | 0 | 24,000 | ||||||
| Payments of mortgage debt | (37,219 | ) | (157,823 | ) | ||||
| Financing costs | (891 | ) | (3,764 | ) | ||||
| Net cash used in financing activities | (207,558 | ) | (75,323 | ) | ||||
| Net change in cash and cash equivalents | 0 | 0 | ||||||
| Cash and cash equivalents, beginning of period | 0 | 0 | ||||||
| Cash and cash equivalents, end of period | $ | 0 | $ | 0 | ||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | 35,049 | $ | 30,192 | ||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Stock consideration in Apple Ten merger (see note 2) | $ | 0 | $ | 956,086 | ||||
| Accrued distribution to common shareholders | $ | 22,302 | $ | 22,325 | ||||
| Mortgage debt assumed by buyer upon sale of real estate | $ | 27,073 | $ | 0 | ||||
Three Months Ended September 30, 2023 and 2022 |
| |||||||||||||||||||
|
| Common Stock |
|
| Accumulated |
|
| Distributions |
|
|
|
| ||||||||
|
| Number |
|
| Amount |
|
| Comprehensive |
|
| Greater Than |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at June 30, 2023 |
|
| 228,799 |
|
| $ | 4,579,405 |
|
| $ | 35,999 |
|
| $ | (1,447,349 | ) |
| $ | 3,168,055 |
|
Share based compensation, net |
|
| 12 |
|
|
| 870 |
|
|
| - |
|
|
| - |
|
|
| 870 |
|
Equity issuance costs |
|
| - |
|
|
| (33 | ) |
|
| - |
|
|
| - |
|
|
| (33 | ) |
Common shares repurchased |
|
| (4 | ) |
|
| (49 | ) |
|
| - |
|
|
| - |
|
|
| (49 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 1,412 |
|
|
| - |
|
|
| 1,412 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 58,512 |
|
|
| 58,512 |
|
Distributions declared to shareholders ($0.24 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (54,856 | ) |
|
| (54,856 | ) |
Balance at September 30, 2023 |
|
| 228,807 |
|
| $ | 4,580,193 |
|
| $ | 37,411 |
|
| $ | (1,443,693 | ) |
| $ | 3,173,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at June 30, 2022 |
|
| 228,886 |
|
| $ | 4,579,590 |
|
| $ | 22,330 |
|
| $ | (1,380,294 | ) |
| $ | 3,221,626 |
|
Share based compensation, net |
|
| 45 |
|
|
| 996 |
|
|
| - |
|
|
| - |
|
|
| 996 |
|
Equity issuance costs |
|
| - |
|
|
| (12 | ) |
|
| - |
|
|
| - |
|
|
| (12 | ) |
Common shares repurchased |
|
| (97 | ) |
|
| (1,376 | ) |
|
| - |
|
|
| - |
|
|
| (1,376 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 16,024 |
|
|
| - |
|
|
| 16,024 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59,146 |
|
|
| 59,146 |
|
Distributions declared to shareholders ($0.19 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (43,408 | ) |
|
| (43,408 | ) |
Balance at September 30, 2022 |
|
| 228,834 |
|
| $ | 4,579,198 |
|
| $ | 38,354 |
|
| $ | (1,364,556 | ) |
| $ | 3,252,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Nine Months Ended September 30, 2023 and 2022 |
| |||||||||||||||||||
|
| Common Stock |
|
| Accumulated |
|
| Distributions |
|
|
|
| ||||||||
|
| Number |
|
| Amount |
|
| Comprehensive |
|
| Greater Than |
|
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2022 |
|
| 228,645 |
|
| $ | 4,577,022 |
|
| $ | 36,881 |
|
| $ | (1,435,508 | ) |
| $ | 3,178,395 |
|
Share based compensation, net |
|
| 642 |
|
|
| 10,145 |
|
|
| - |
|
|
| - |
|
|
| 10,145 |
|
Equity issuance costs |
|
| - |
|
|
| (94 | ) |
|
| - |
|
|
| - |
|
|
| (94 | ) |
Common shares repurchased |
|
| (480 | ) |
|
| (6,880 | ) |
|
| - |
|
|
| - |
|
|
| (6,880 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 530 |
|
|
| - |
|
|
| 530 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 156,724 |
|
|
| 156,724 |
|
Distributions declared to shareholders ($0.72 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (164,909 | ) |
|
| (164,909 | ) |
Balance at September 30, 2023 |
|
| 228,807 |
|
| $ | 4,580,193 |
|
| $ | 37,411 |
|
| $ | (1,443,693 | ) |
| $ | 3,173,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at December 31, 2021 |
|
| 228,256 |
|
| $ | 4,569,352 |
|
| $ | (15,508 | ) |
| $ | (1,406,523 | ) |
| $ | 3,147,321 |
|
Share based compensation, net |
|
| 685 |
|
|
| 11,585 |
|
|
| - |
|
|
| - |
|
|
| 11,585 |
|
Equity issuance costs |
|
| - |
|
|
| (218 | ) |
|
| - |
|
|
| - |
|
|
| (218 | ) |
Common shares repurchased |
|
| (107 | ) |
|
| (1,521 | ) |
|
| - |
|
|
| - |
|
|
| (1,521 | ) |
Interest rate derivatives |
|
| - |
|
|
| - |
|
|
| 53,862 |
|
|
| - |
|
|
| 53,862 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 142,493 |
|
|
| 142,493 |
|
Distributions declared to shareholders ($0.44 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (100,526 | ) |
|
| (100,526 | ) |
Balance at September 30, 2022 |
|
| 228,834 |
|
| $ | 4,579,198 |
|
| $ | 38,354 |
|
| $ | (1,364,556 | ) |
| $ | 3,252,996 |
|
See notes to consolidated financial statements.
Apple Hospitality REIT, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 156,724 |
|
| $ | 142,493 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 137,398 |
|
|
| 135,781 |
|
Gain on sale of real estate |
|
| - |
|
|
| (1,785 | ) |
Other non-cash expenses, net |
|
| 6,611 |
|
|
| 6,582 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Increase in due from third-party managers, net |
|
| (17,514 | ) |
|
| (25,058 | ) |
Increase in other assets, net |
|
| (6,862 | ) |
|
| (4,069 | ) |
Increase in accounts payable and other liabilities |
|
| 25,807 |
|
|
| 19,257 |
|
Net cash provided by operating activities |
|
| 302,164 |
|
|
| 273,201 |
|
|
|
|
|
|
| |||
Cash flows from investing activities: |
|
|
|
|
|
| ||
Acquisition of hotel properties, net |
|
| (30,980 | ) |
|
| - |
|
Disbursements for potential acquisitions, net |
|
| (5,779 | ) |
|
| (1,602 | ) |
Capital improvements |
|
| (49,336 | ) |
|
| (34,921 | ) |
Net proceeds from sale of real estate |
|
| - |
|
|
| 8,293 |
|
Net cash used in investing activities |
|
| (86,095 | ) |
|
| (28,230 | ) |
|
|
|
|
|
| |||
Cash flows from financing activities: |
|
|
|
|
|
| ||
Repurchases of common shares |
|
| (6,880 | ) |
|
| (1,521 | ) |
Repurchases of common shares to satisfy employee withholding requirements |
|
| (5,742 | ) |
|
| (4,415 | ) |
Distributions paid to common shareholders |
|
| (183,119 | ) |
|
| (86,792 | ) |
Equity issuance costs |
|
| (72 | ) |
|
| (218 | ) |
Net payments on revolving credit facility |
|
| - |
|
|
| (76,000 | ) |
Proceeds from term loans and senior notes |
|
| 50,000 |
|
|
| 125,000 |
|
Payments of mortgage debt and other loans |
|
| (43,968 | ) |
|
| (166,243 | ) |
Principal payments on finance leases |
|
| (231 | ) |
|
| (108 | ) |
Financing costs |
|
| (506 | ) |
|
| (10,229 | ) |
Net cash used in financing activities |
|
| (190,518 | ) |
|
| (220,526 | ) |
|
|
|
|
|
| |||
Net change in cash, cash equivalents and restricted cash |
|
| 25,551 |
|
|
| 24,445 |
|
|
|
|
|
|
| |||
Cash, cash equivalents and restricted cash, beginning of period |
|
| 43,512 |
|
|
| 39,949 |
|
|
|
|
|
|
| |||
Cash, cash equivalents and restricted cash, end of period |
| $ | 69,063 |
|
| $ | 64,394 |
|
|
|
|
|
|
| |||
Supplemental cash flow information: |
|
|
|
|
|
| ||
Interest paid |
| $ | 49,583 |
|
| $ | 42,651 |
|
|
|
|
|
|
| |||
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
| ||
Accrued distribution to common shareholders |
| $ | 18,280 |
|
| $ | 15,981 |
|
|
|
|
|
|
| |||
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
| ||
Cash and cash equivalents, beginning of period |
| $ | 4,077 |
|
| $ | 3,282 |
|
Restricted cash-furniture, fixtures and other escrows, beginning of period |
|
| 39,435 |
|
|
| 36,667 |
|
Cash, cash equivalents and restricted cash, beginning of period |
| $ | 43,512 |
|
| $ | 39,949 |
|
|
|
|
|
|
| |||
Cash and cash equivalents, end of period |
| $ | 35,366 |
|
| $ | 25,573 |
|
Restricted cash-furniture, fixtures and other escrows, end of period |
|
| 33,697 |
|
|
| 38,821 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 69,063 |
|
| $ | 64,394 |
|
See notes to consolidated financial statements.
6
Apple Hospitality REIT, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
Apple Hospitality REIT, Inc., formed in November 2007 as a Virginia corporation, together with its wholly-owned subsidiaries (the “Company”), is a Virginia corporation that has elected to be treated as aself-advised real estate investment trust (“REIT”) for federal income tax purposes. The Company is a self-advised REIT that invests in income-producing real estate, primarily in the lodging sector, in the United States.States (“U.S.”). The Company’s fiscal year end is December 31. The Company has no foreign operations or assets, and its operating structure includes only one reportable segment. The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Although the Company has interests in potential variable interest entities through its purchase commitments, it is not the primary beneficiary as the Company does not have any elements of power in the decision makingdecision-making process of these entities, andentities; therefore, the Company does not consolidate the entities. As of September 30, 2017,2023, the Company owned 237220 hotels with an aggregate of 30,18828,929 rooms located in 3337 states including one hotel with 316 rooms classified as held for sale, which was soldwell as one property leased to an unrelated party in October 2017.third parties. The Company’s common shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “APLE.”
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not include all of the information required by U.S. generally accepted accounting principles generally accepted in the United States(“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its 2016 Annual Report on Form 10-K.10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Operating results for the three and nine months ended September 30, 20172023 are not necessarily indicative of the results that may be expected for the twelve monthtwelve-month period ending December 31, 2017.2023.
Use of Estimates
The preparation of the financial statements in conformity with United States generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Net Income Per Common Share
Basic net income per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net income per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net income per common share were the same for each of the periods presented.
2. Merger with Apple REIT Ten, Inc.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 (Actual) | 2016 (Proforma) | 2017 (Proforma) | 2016 (Proforma) | |||||||||||||
| Total revenue | $ | 324,926 | $ | 325,924 | $ | 949,555 | $ | 949,760 | ||||||||
| Net income | $ | 62,824 | $ | 59,960 | $ | 182,209 | $ | 176,985 | ||||||||
| Basic and diluted net income per common share | $ | 0.28 | $ | 0.27 | $ | 0.82 | $ | 0.79 | ||||||||
| Weighted average common shares outstanding - basic and diluted | 223,057 | 223,403 | 223,052 | 223,399 | ||||||||||||
The Company’s investment in real estate consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 805,837 |
|
| $ | 802,625 |
|
Building and improvements |
|
| 4,706,750 |
|
|
| 4,656,343 |
|
Furniture, fixtures and equipment |
|
| 543,310 |
|
|
| 522,082 |
|
Finance ground lease assets |
|
| 102,084 |
|
|
| 102,084 |
|
Franchise fees |
|
| 20,146 |
|
|
| 19,925 |
|
|
| 6,178,127 |
|
|
| 6,103,059 |
| |
Less accumulated depreciation and amortization |
|
| (1,629,340 | ) |
|
| (1,492,097 | ) |
Investment in real estate, net |
| $ | 4,548,787 |
|
| $ | 4,610,962 |
|
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Land | $ | 711,826 | $ | 707,878 | ||||
| Building and Improvements | 4,294,310 | 4,270,095 | ||||||
| Furniture, Fixtures and Equipment | 411,376 | 391,421 | ||||||
| Franchise Fees | 11,865 | 11,692 | ||||||
| 5,429,377 | 5,381,086 | |||||||
| Less Accumulated Depreciation | (686,787 | ) | (557,597 | ) | ||||
| Investment in Real Estate, net | $ | 4,742,590 | $ | 4,823,489 | ||||
As of September 30, 2017,2023, the Company owned 237220 hotels with an aggregate of 30,18828,929 rooms located in 33 states, including one37 states. In May 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel with 316operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel's 210 hotel rooms classified as held for sale, which was sold to an unrelated party(“non-hotel property”). Lease revenue from this property is recorded in October 2017.
7
a result of the lease agreement, this property is excluded from the Company’s hotel and room counts effective May 2023 through the end of the lease term.
The Company leases all of its220 hotels to its wholly-owned taxable REIT subsidiary (or a subsidiary thereof) under a master hotel lease agreements.
Hotel Acquisitions
The Company acquired three hotelscompleted the acquisition of one hotel during the first nine months ended September 30, 2023, for a gross purchase price of 2017. $31.0 million. The hotel, which was purchased on June 30, 2023, is a 154-room Courtyard in Cleveland, Ohio, managed by Concord Hospitality Enterprises Company, LLC (“Concord”).
During the year ended December 31, 2022, the Company acquired two hotels, neither of which were acquired during the nine months ended September 30, 2022. The following table sets forth the location, brand, manager, date acquired, number of rooms and gross purchase price, excluding transaction costs, for each hotel. All dollar amounts are in thousands.
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| Gross |
| ||
Louisville |
| KY |
| AC Hotels |
| Concord |
| 10/25/2022 |
|
| 156 |
|
| $ | 51,000 |
|
Pittsburgh |
| PA |
| AC Hotels |
| Concord |
| 10/25/2022 |
|
| 134 |
|
|
| 34,000 |
|
|
|
|
|
|
|
|
|
|
| 290 |
|
| $ | 85,000 |
| |
| City | State | Brand | Manager | Date Acquired | Rooms | Gross Purchase Price (a) | ||||||||||
| Fort Worth | TX | Courtyard | LBA | 2/2/2017 | 124 | $ | 18,000 | |||||||||
| Birmingham (b) | AL | Hilton Garden Inn | LBA | 9/12/2017 | 104 | 19,162 | ||||||||||
| Birmingham (b) | AL | Home2 Suites | LBA | 9/12/2017 | 106 | 19,276 | ||||||||||
| 334 | $ | 56,438 | ||||||||||||||
In 2023, the Company closed on the purchase of a newly constructed 128-room Home2 Suites hotel in Atlanta, Georgia, the same day the hotel opened for business, for a purchase price of approximately $24.6 million. The Company usedutilized its available cash and borrowings under its revolving credit facilityRevolving Credit Facility (as defined below) to purchase the Cleveland, Ohio hotel. Additionally, as described in Note 2, effective September 1, 2016,In 2022, the Company completed the merger with Apple Ten, which added 56 hotels, located in 17 states, with an aggregate of 7,209 roomsutilized its available cash on hand and a $50 million draw on its $575 million term loan facility (as defined below) to the Company’s real estate portfolio. The total real estate valuepurchase both of the merger was estimated to be approximately $1.3 billion.above-referenced hotels. The Companyacquisitions of these hotel properties were accounted for as acquisitions of asset groups, whereby costs incurred to effect the purchaseacquisitions (which were not significant) were capitalized as part of these hotels in accordance with ASC 805, Business Combinations. No goodwill was recorded in connection with anythe cost of these acquisitions.the assets acquired. For the 57 hotelsone hotel acquired during the nine months ended September 30, 2016,2023, the amount of revenue and operating income (excluding merger and other acquisition related transaction costs) included in the Company’s consolidated statementsstatement of operations from the date of acquisition through September 30, 20162023 was approximately $25.0$2.1 million and $9.5$0.4 million, respectively.
Purchase Contract Commitments
As of September 30, 2017,2023, the Company had separate outstanding contracts for the potential purchase of four additionalsix hotels as well as one free-standing parking garage for a total combined purchase price of approximately $146.1$359.0 million. TwoFive of the seven properties under contract are existing. The Company completed the purchase of four of the existing properties, including two hotels theand one free-standing parking garage in Salt Lake City, Residence InnUtah and one hotel in Renton, Washington on October 11, 2023 and October 18, 2023, respectively (see Note 9 titled “Subsequent Events” for more information). The Company plans to complete the Portland Residence Inn, whichpurchase of the one remaining existing property in the fourth quarter of 2023. The other two purchase contracts are already in operation, were acquired in October 2017. The two remainingfor hotels are under construction and aredevelopment, with the Madison, Wisconsin hotel currently planned to be completed and opened for business overin mid-2024 and the next 12 months from September 30, 2017,Nashville, Tennessee hotel currently planned to be completed and opened for business in 2025, at which time closing onrespective times the Company expects to complete the purchases of these hotels is expected to occur.hotels. Although the Company is working towards acquiringcompleting the two hotels under construction,acquisitions of the three remaining properties, in each case there are manya number of conditions to closing that have not yet been satisfied, and there can be no assurance that a closingclosings on these hotelsproperties will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is obligated to specifically perform under the applicable purchase contracts and acquire these properties.
8
The following table summarizes the location, expected franchise brand, date of purchase contract, expected number of rooms upon completion, refundable (if the seller does not meet its obligations under the contract) contract deposits paid and gross purchase price for each of the contracts outstanding atas of September 30, 2017.2023. All dollar amounts are in thousands.
Location |
| Brand |
| Date of |
| Rooms |
|
| Refundable |
|
| Gross |
| |||
Madison, WI (1) |
| Embassy Suites |
| 7/27/2021 |
|
| 260 |
|
| $ | 893 |
|
| $ | 78,598 |
|
Nashville, TN (1) |
| Motto |
| 5/16/2023 |
|
| 256 |
|
|
| 1,058 |
|
|
| 96,683 |
|
Salt Lake City, UT (2) |
| Courtyard |
| 8/10/2023 |
|
| 175 |
|
|
| 920 |
|
|
| 48,110 |
|
Salt Lake City, UT (2) |
| Hyatt House |
| 8/10/2023 |
|
| 159 |
|
|
| 655 |
|
|
| 34,250 |
|
Salt Lake City, UT (2)(3) |
| N/A |
| 8/10/2023 |
| N/A |
|
|
| 175 |
|
|
| 9,140 |
| |
Renton, WA (2) |
| Residence Inn |
| 8/10/2023 |
|
| 146 |
|
|
| 850 |
|
|
| 55,500 |
|
South Jordan, UT |
| Embassy Suites |
| 9/5/2023 |
|
| 192 |
|
|
| 300 |
|
|
| 36,750 |
|
|
|
|
|
|
|
| 1,188 |
|
| $ | 4,851 |
|
| $ | 359,031 |
|
| Location | Brand | Date of Purchase Contract | Rooms | Refundable Deposits | Gross Purchase Price | |||||||||||
Operating (a) | ||||||||||||||||
| Salt Lake City, UT | Residence Inn | 8/22/2017 | 136 | $ | 500 | $ | 25,500 | |||||||||
| Portland, ME | Residence Inn | 8/30/2017 | 179 | 1,000 | 55,750 | |||||||||||
Under development (b) | ||||||||||||||||
| Phoenix, AZ | Hampton | 10/25/2016 | 210 | 500 | 44,100 | |||||||||||
| Orlando, FL | Home2 Suites | 1/18/2017 | 128 | 3 | 20,736 | |||||||||||
| 653 | $ | 2,003 | $ | 146,086 | ||||||||||||
3. Dispositions
There were no dispositions during the purchase price for the remaining outstanding contracts will be funded similarly.
Excluding gains on sale of its 316-room Marriott hotel in Fairfax, Virginia, acquired byreal estate, the Company in the merger with Apple Ten in September 2016, for a gross sales price of $41.5 million, as amended. The hotel was classified as held for sale at its historical cost (which was less than the contract price, net of costs to sell) in the Company’s consolidated balance sheet as of September 30, 2017.
4. Debt
Summary
As of September 30, 2023 and 2016.December 31, 2022, the Company’s debt consisted of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
Revolving credit facility |
| $ | - |
|
| $ | - |
|
Term loans and senior notes, net |
|
| 1,088,407 |
|
|
| 1,037,384 |
|
Mortgage debt, net |
|
| 284,861 |
|
|
| 328,865 |
|
Debt, net |
| $ | 1,373,268 |
|
| $ | 1,366,249 |
|
9
The aggregate amounts of principal payable under the Company’s total debt obligations as of September 30, 2023 (including the Revolving Credit Facility (if any) (as defined below), term loans, senior notes and mortgage debt), for the remainder of this fiscal year, each of the next four fiscal years and thereafter are as follows (in thousands):
2023 (October - December) |
| $ | 2,245 |
|
2024 |
|
| 113,597 |
|
2025 |
|
| 295,140 |
|
2026 |
|
| 74,649 |
|
2027 |
|
| 278,602 |
|
Thereafter |
|
| 616,014 |
|
|
| 1,380,247 |
| |
Unamortized fair value adjustment of assumed debt |
|
| 609 |
|
Unamortized debt issuance costs |
|
| (7,588 | ) |
Total |
| $ | 1,373,268 |
|
The Company utilizes an unsecureduses interest rate swaps to manage its interest rate risk on a portion of its variable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the annual Secured Overnight Financing Rate (“SOFR”) for a one-month term (“one-month SOFR”) plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable-rate debt instruments. See Note 5 for more information on the interest rate swap agreements. The Company’s total fixed-rate and variable-rate debt, after giving effect to its interest rate swaps in effect as of September 30, 2023 and December 31, 2022, is set forth below. All dollar amounts are in thousands.
|
| September 30, |
|
| Percentage |
|
| December 31, |
|
| Percentage |
| ||||
Fixed-rate debt (1) |
| $ | 1,105,247 |
|
|
| 80 | % |
| $ | 1,149,215 |
|
|
| 84 | % |
Variable-rate debt |
|
| 275,000 |
|
|
| 20 | % |
|
| 225,000 |
|
|
| 16 | % |
Total |
| $ | 1,380,247 |
|
|
|
|
| $ | 1,374,215 |
|
|
|
| ||
Weighted-average interest rate of debt |
|
| 4.34 | % |
|
|
|
|
| 3.93 | % |
|
|
| ||
Credit Facilities
$1.2 Billion Credit Facility
On July 25, 2022, the Company entered into a credit facility (the “$965 million1.2 billion credit facility”) that is comprised of (i) a $540$650 million revolving credit facility with an initial maturity date of May 18, 2019 andJuly 25, 2026 (the “Revolving Credit Facility”), (ii) a $425$275 million term loan facility with a maturity date of May 18, 2020, consisting of three term loans, allJuly 25, 2027, funded during 2015 (the “$425at closing, and (iii) a $300 million term loans”loan with a maturity date of January 31, 2028 (including a $150 million delayed draw option until 180 days from closing), of which $200 million was funded at closing, $50 million was funded on October 24, 2022 and the remaining $50 million was funded on January 17, 2023 (clauses (ii) and (iii) are referred to together as the “$575 million term loan facility”).
Subject to certain conditions, including covenant compliance and additional fees, the revolving credit facilityRevolving Credit Facility maturity date may be extended up to one year andyear. The credit agreement for the amount of the total$1.2 billion credit facility may be increased from $965 million to $1.25 billion.contains mandatory prepayment requirements, customary affirmative and negative covenants (as described below), restrictions on certain investments and events of default. The Company may make voluntary prepayments, in whole or in part, at any time. Interest payments on the $965 million$1.2 billion credit facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBOR (the London Inter-Bank Offered Rate forSOFR plus a one-month term)0.10% SOFR spread adjustment plus a margin ranging from 1.50%1.35% to 2.30%2.25%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In conjunction with the $425 million term loans,As of September 30, 2023, the Company entered into two interest rate swap agreements, which effectively fixhad availability of $650 million under the interest rate on $322.5 million of the outstanding balance at approximately 3.10%, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreements.Revolving Credit Facility. The Company is also required to pay quarterly an unused facility fee at an annual rate of 0.20%0.20% or 0.30%0.25% on the unused portion of the revolving credit facility,Revolving Credit Facility, based on the amount of borrowings outstanding during the quarter.
10
$150225 Million Term Loan Facility
The Company also has an unsecured $225 million term loan facility that is comprised of (i) a $50 million term loan with an initial maturity date of August 2, 2023, which was funded on August 2, 2018, and (ii) a $175 million term loan with a maturity date of August 2, 2025, of which $100 million was funded on August 2, 2018, and the remaining $75 million was funded on January 29, 2019 (clauses (i) and (ii) are referred to together as the “$225 million term loan facility”). On April 8, 2016,July 19, 2023, the Company entered into an unsecured $150amendment of its $225 million term loan facility, with a syndicatewhich extended the maturity date of commercial banks (the “$150the existing $50 million term loan facility”), consisting of a term loan of upby two years to $50 million that will mature on April 8, 2021 (the “$50 million term loan”) and a term loan of up to $100 million that will mature on April 8, 2023 (the “$100 million term loan,” and collectively with the $50 million term loan, the “$150 million term loans”). The Company initially borrowed $50 million under the $150 million term loan facility on April 8, 2016 and borrowed the remaining $100 million on September 30, 2016. The credit agreement contains requirements and covenants similar to the Company’s $965 million credit facility.August 2, 2025. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the $150$225 million term loan facility are due monthly and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBORSOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.45%1.35% to 2.20% for the $50 million term loan and 1.80% to 2.60% for the $100 million term loan,2.50%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. The Company also entered into two interest rate swap agreements which, beginning on September 30, 2016, effectively fix the interest rate on the $50 million term loan and $100 million term loan at 2.54% and 3.13%, respectively, subject to adjustment based on the Company’s leverage ratio, through maturity. See Note 6 for more information on the interest rate swap agreements. Proceeds from the $150 million term loan facility were used to pay down outstanding borrowings on the Company’s revolving credit facility, using the increased availability to repay scheduled mortgage debt maturities through the end of the first quarter of 2017.
2017 $85 Million Term Loan
On July 25, 2017, the Company entered into an unsecured $85$85 million term loan with a syndicate of commercial banks,facility with a maturity date of July 25, 2024, consisting of one term loan (the “$“2017 $85 million term loan” and, together with the $425 million term loans and the $150 million term loans, the “term loans”). Net proceeds from the $85 million term loan were used to pay down outstanding borrowings on the Company’s revolving credit facility. Subject to certain conditions including covenant compliance and additional fees, the $85 million term loan may be increased to $125 million. The credit agreement contains requirements and covenants similar to the Company’s $965 million credit facility. facility”) that was funded at closing. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions. Interest payments on the $852017 $85 million term loan facility are due monthly, and the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month LIBORSOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.80%1.30% to 2.60%2.10%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement. In conjunction with the
2019 $85 million term loan,Million Term Loan Facility
On December 31, 2019, the Company entered into two interest rate swap agreements (one in May 2017an unsecured $85 million term loan facility with a notional amountmaturity date of $75December 31, 2029, consisting of one term loan funded at closing (the “2019 $85 million effective July 31, 2017,term loan facility”). Net proceeds from the 2019 $85 million term loan facility were used to pay down borrowings under the Company’s then-existing $425 million revolving credit facility. The Company may make voluntary prepayments, in whole or in part, subject to certain conditions. Interest payments on the 2019 $85 million term loan facility are due monthly, and the other in August 2017 with a notional amount of $10 million, effective August 10, 2017), which effectively fix the interest rate, subject to certain exceptions, is equal to an annual rate of the one-month SOFR plus a 0.10% SOFR spread adjustment plus a margin ranging from 1.70% to 2.55%, depending upon the Company’s leverage ratio, as calculated under the terms of the credit agreement.
$50 Million Senior Notes Facility
On March 16, 2020, the Company entered into an unsecured $50 million senior notes facility with a maturity date of March 31, 2030, consisting of senior notes totaling $50 million funded at closing (the “$50 million senior notes facility”). Net proceeds from the $50 million senior notes facility were available to provide funding for general corporate purposes. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $85$50 million term loan at approximately 3.76%,senior notes facility are due quarterly, and the interest rate, subject to adjustment basedcertain exceptions, ranges from an annual rate of 3.60% to 4.35% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement.
$75 Million Senior Notes Facility
On June 2, 2022, the Company entered into an unsecured $75 million senior notes facility with a maturity date of June 2, 2029, through maturity.consisting of senior notes totaling $75 million funded at closing (the “$75 million senior notes facility”, and collectively with the $1.2 billion credit facility, the $225 million term loan facility, the 2017 $85 million term loan facility, the 2019 $85 million term loan facility and the $50 million senior notes facility, the “unsecured credit facilities”). Net proceeds from the $75 million senior notes facility were available to provide funding for general corporate purposes, including the repayment of borrowings under the Company’s then-existing $425 million revolving credit facility and repayment of mortgage debt. The Company may make voluntary prepayments, in whole or in part, at any time, subject to certain conditions, including make-whole provisions. Interest payments on the $75 million senior notes facility are due quarterly, and the interest rate, subject to certain exceptions, ranges from an annual rate of 4.88% to 5.63% depending on the Company’s leverage ratio, as calculated under the terms of the note agreement.
11
As of September 30, 2023 and December 31, 2022, the details of the Company’s unsecured credit facilities were as set forth in the table below. All dollar amounts are in thousands.
|
|
|
|
|
| Outstanding Balance |
| |||||
|
| Interest Rate |
| Maturity |
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Revolving credit facility (1) |
| SOFR + 0.10% + 1.40% - 2.25% |
| 7/25/2026 |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
| |||
Term loans and senior notes |
|
|
|
|
|
|
|
|
|
| ||
$275 million term loan |
| SOFR + 0.10% + 1.35% - 2.20% |
| 7/25/2027 |
|
| 275,000 |
|
|
| 275,000 |
|
$300 million term loan |
| SOFR + 0.10% + 1.35% - 2.20% |
| 1/31/2028 |
|
| 300,000 |
|
|
| 250,000 |
|
$50 million term loan |
| SOFR + 0.10% + 1.35% - 2.20% |
| 8/2/2025 (3) |
|
| 50,000 |
|
|
| 50,000 |
|
$175 million term loan |
| SOFR + 0.10% + 1.65% - 2.50% |
| 8/2/2025 |
|
| 175,000 |
|
|
| 175,000 |
|
2017 $85 million term loan |
| SOFR + 0.10% + 1.30% - 2.10% |
| 7/25/2024 |
|
| 85,000 |
|
|
| 85,000 |
|
2019 $85 million term loan |
| SOFR + 0.10% + 1.70% - 2.55% |
| 12/31/2029 |
|
| 85,000 |
|
|
| 85,000 |
|
$50 million senior notes |
| 3.60% - 4.35% |
| 3/31/2030 |
|
| 50,000 |
|
|
| 50,000 |
|
$75 million senior notes |
| 4.88% - 5.63% |
| 6/2/2029 |
|
| 75,000 |
|
|
| 75,000 |
|
Term loans and senior notes at stated |
|
|
|
|
|
| 1,095,000 |
|
|
| 1,045,000 |
|
Unamortized debt issuance costs |
|
|
|
|
|
| (6,593 | ) |
|
| (7,616 | ) |
Term loans and senior notes, net |
|
|
|
|
|
| 1,088,407 |
|
|
| 1,037,384 |
|
|
|
|
|
|
|
|
|
|
| |||
Credit facilities, net (1) |
|
|
|
|
| $ | 1,088,407 |
|
| $ | 1,037,384 |
|
Weighted-average interest rate (2) |
|
|
|
|
|
| 4.45 | % |
|
| 3.92 | % |
| As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||||||||
| Maturity Date | Outstanding Balance | Interest Rate | Outstanding Balance | Interest Rate | ||||||||||||||||||
| Revolving credit facility (1) | 5/18/2019 | $ | 216,700 | 2.78 | % | (2 | ) | $ | 270,000 | 2.32 | % | (2 | ) | |||||||||
| Term loans | ||||||||||||||||||||||
| $425 million term loans | 5/18/2020 | 425,000 | 3.01 | % | (3 | ) | 425,000 | 2.90 | % | (3 | ) | |||||||||||
| $50 million term loan | 4/8/2021 | 50,000 | 2.54 | % | (4 | ) | 50,000 | 2.54 | % | (4 | ) | |||||||||||
| $100 million term loan | 4/8/2023 | 100,000 | 3.13 | % | (4 | ) | 100,000 | 3.13 | % | (4 | ) | |||||||||||
| $85 million term loan | 7/25/2024 | 85,000 | 3.76 | % | (4 | ) | 0 | n/a | ||||||||||||||
| Total term loans at stated value | 660,000 | 575,000 | ||||||||||||||||||||
| Unamortized debt issuance costs | (4,012 | ) | (4,066 | ) | ||||||||||||||||||
| Total term loans | 655,988 | 570,934 | ||||||||||||||||||||
| Total revolving credit facility and term loans | $ | 872,688 | $ | 840,934 | ||||||||||||||||||
Credit Facilities Covenants
The credit agreements governing the $965 millionunsecured credit facility,facilities (collectively, the $150 million term loan facility and the $85 million term loan“credit agreements”) contain mandatory prepayment requirements, customary affirmative covenants,and negative covenants, restrictions on certain investments and events of default. Thedefault, including the following financial and restrictive covenants (capitalized terms not defined below are defined in the credit agreements require thatagreements):
The Company was in compliance with the applicable covenants atas of September 30, 2017.2023.
12
Mortgage Debt
As of September 30, 2017,2023, the Company had approximately $430.1$285.2 million in outstanding property levelmortgage debt secured by 2815 properties with maturity dates ranging from June 2020August 2024 to December 2026, May 2038, stated interest rates ranging from 3.55%3.40% to 6.25%4.46% and effective interest rates ranging from 3.55%3.40% to 4.97%4.37%. The loans generally provide for monthly payments of principal and interest on an amortized basis and defeasance or prepayment penalties if prepaid. The following table sets forth the hotel properties securing each loan, the interest rate, loan assumption or origination date, maturity date, the principal amount assumed or originated, and the outstanding balance prior to any fair value adjustments or debt issuance costs as of September 30, 20172023 and December 31, 20162022 for each of the Company’s mortgage debt obligations. All dollar amounts are in thousands.
Location |
| Brand |
| Interest |
|
| Loan |
| Maturity |
| Principal |
|
| Outstanding |
|
| Outstanding |
| ||||
Miami, FL |
| Homewood Suites |
|
| 4.02 | % |
| 3/1/2014 |
| (2) |
| $ | 16,677 |
|
| $ | - |
|
| $ | 12,440 |
|
Huntsville, AL |
| Homewood Suites |
|
| 4.12 | % |
| 3/1/2014 |
| (3) |
|
| 8,306 |
|
|
| - |
|
|
| 6,193 |
|
Prattville, AL |
| Courtyard |
|
| 4.12 | % |
| 3/1/2014 |
| (3) |
|
| 6,596 |
|
|
| - |
|
|
| 4,918 |
|
San Diego, CA |
| Residence Inn |
|
| 3.97 | % |
| 3/1/2014 |
| (4) |
|
| 18,600 |
|
|
| - |
|
|
| 13,827 |
|
New Orleans, LA |
| Homewood Suites |
|
| 4.36 | % |
| 7/17/2014 |
| 8/11/2024 |
|
| 27,000 |
|
|
| 20,522 |
|
|
| 21,161 |
|
Westford, MA |
| Residence Inn |
|
| 4.28 | % |
| 3/18/2015 |
| 4/11/2025 |
|
| 10,000 |
|
|
| 7,793 |
|
|
| 8,024 |
|
Denver, CO |
| Hilton Garden Inn |
|
| 4.46 | % |
| 9/1/2016 |
| 6/11/2025 |
|
| 34,118 |
|
|
| 27,608 |
|
|
| 28,400 |
|
Oceanside, CA |
| Courtyard |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 13,655 |
|
|
| 11,786 |
|
|
| 12,019 |
|
Omaha, NE |
| Hilton Garden Inn |
|
| 4.28 | % |
| 9/1/2016 |
| 10/1/2025 |
|
| 22,681 |
|
|
| 19,577 |
|
|
| 19,963 |
|
Boise, ID |
| Hampton |
|
| 4.37 | % |
| 5/26/2016 |
| 6/11/2026 |
|
| 24,000 |
|
|
| 20,815 |
|
|
| 21,194 |
|
Burbank, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,564 |
|
|
| 20,729 |
|
|
| 21,326 |
|
San Diego, CA |
| Courtyard |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 25,473 |
|
|
| 20,655 |
|
|
| 21,250 |
|
San Diego, CA |
| Hampton |
|
| 3.55 | % |
| 11/3/2016 |
| 12/1/2026 |
|
| 18,963 |
|
|
| 15,377 |
|
|
| 15,819 |
|
Burbank, CA |
| SpringHill Suites |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 28,470 |
|
|
| 24,445 |
|
|
| 25,057 |
|
Santa Ana, CA |
| Courtyard |
|
| 3.94 | % |
| 3/9/2018 |
| 4/1/2028 |
|
| 15,530 |
|
|
| 13,334 |
|
|
| 13,668 |
|
Richmond, VA |
| Courtyard |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 13,911 |
|
|
| 14,144 |
|
Richmond, VA |
| Residence Inn |
|
| 3.40 | % |
| 2/12/2020 |
| 3/11/2030 |
|
| 14,950 |
|
|
| 13,911 |
|
|
| 14,144 |
|
Portland, ME |
| Residence Inn |
|
| 3.43 | % |
| 3/2/2020 |
| 3/1/2032 |
|
| 33,500 |
|
|
| 30,500 |
|
|
| 30,500 |
|
San Jose, CA |
| Homewood Suites |
|
| 4.22 | % |
| 12/22/2017 |
| 5/1/2038 |
|
| 30,000 |
|
|
| 24,284 |
|
|
| 25,168 |
|
|
|
|
|
|
|
|
|
|
| $ | 389,033 |
|
|
| 285,247 |
|
|
| 329,215 |
| ||
Unamortized fair value adjustment of |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 609 |
|
|
| 819 |
| ||
Unamortized debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (995 | ) |
|
| (1,169 | ) | ||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 284,861 |
|
| $ | 328,865 |
| ||
| Location | Brand | Interest Rate (1) | Loan Assumption or Origination Date | Maturity Date | Principal Assumed or Originated | Outstanding balance as of September 30, 2017 | Outstanding balance as of December 31, 2016 | |||||||||||||||||
| Irving, TX | Homewood Suites | 5.83 | % | 12/29/2010 | (2 | ) | $ | 6,052 | $ | 0 | $ | 5,072 | ||||||||||||
| Gainesville, FL | Homewood Suites | 5.89 | % | 9/1/2016 | (2 | ) | 12,051 | 0 | 11,966 | |||||||||||||||
| Duncanville, TX | Hilton Garden Inn | 5.88 | % | 10/21/2008 | (2 | ) | 13,966 | 0 | 12,126 | |||||||||||||||
| Dallas, TX | Hilton | 3.95 | % | 5/22/2015 | (3 | ) | 28,000 | 0 | 27,246 | |||||||||||||||
| San Juan Capistrano, CA | Residence Inn | 4.15 | % | 9/1/2016 | 6/1/2020 | 16,210 | 15,858 | 16,104 | ||||||||||||||||
| Colorado Springs, CO | Hampton | 6.25 | % | 9/1/2016 | 7/6/2021 | 7,923 | 7,787 | 7,883 | ||||||||||||||||
| Franklin, TN | Courtyard | 6.25 | % | 9/1/2016 | 8/6/2021 | 14,679 | 14,429 | 14,604 | ||||||||||||||||
| Franklin, TN | Residence Inn | 6.25 | % | 9/1/2016 | 8/6/2021 | 14,679 | 14,429 | 14,604 | ||||||||||||||||
| Grapevine, TX | Hilton Garden Inn | 4.89 | % | 8/29/2012 | 9/1/2022 | 11,810 | 10,487 | 10,707 | ||||||||||||||||
| Collegeville/Philadelphia, PA | Courtyard | 4.89 | % | 8/30/2012 | 9/1/2022 | 12,650 | 11,233 | 11,468 | ||||||||||||||||
| Hattiesburg, MS | Courtyard | 5.00 | % | 3/1/2014 | 9/1/2022 | 5,732 | 5,249 | 5,357 | ||||||||||||||||
| Rancho Bernardo, CA | Courtyard | 5.00 | % | 3/1/2014 | 9/1/2022 | 15,060 | 13,790 | 14,074 | ||||||||||||||||
| Kirkland, WA | Courtyard | 5.00 | % | 3/1/2014 | 9/1/2022 | 12,145 | 11,121 | 11,350 | ||||||||||||||||
| Seattle, WA | Residence Inn | 4.96 | % | 3/1/2014 | 9/1/2022 | 28,269 | 25,871 | 26,409 | ||||||||||||||||
| Anchorage, AK | Embassy Suites | 4.97 | % | 9/13/2012 | 10/1/2022 | 23,230 | 20,706 | 21,133 | ||||||||||||||||
| Somerset, NJ | Courtyard | 4.73 | % | 3/1/2014 | 10/6/2022 | 8,750 | 7,990 | 8,160 | ||||||||||||||||
| Tukwila, WA | Homewood Suites | 4.73 | % | 3/1/2014 | 10/6/2022 | 9,431 | 8,611 | 8,795 | ||||||||||||||||
| Prattville, AL | Courtyard | 4.12 | % | 3/1/2014 | 2/6/2023 | 6,596 | 5,989 | 6,123 | ||||||||||||||||
| Huntsville, AL | Homewood Suites | 4.12 | % | 3/1/2014 | 2/6/2023 | 8,306 | 7,541 | 7,711 | ||||||||||||||||
| San Diego, CA | Residence Inn | 3.97 | % | 3/1/2014 | 3/6/2023 | 18,600 | 16,865 | 17,248 | ||||||||||||||||
| Miami, FL | Homewood Suites | 4.02 | % | 3/1/2014 | 4/1/2023 | 16,677 | 15,138 | 15,479 | ||||||||||||||||
| Syracuse, NY | Courtyard | 4.75 | % | 10/16/2015 | 8/1/2024 | (4 | ) | 11,199 | 10,706 | 10,905 | ||||||||||||||
| Syracuse, NY | Residence Inn | 4.75 | % | 10/16/2015 | 8/1/2024 | (4 | ) | 11,199 | 10,706 | 10,905 | ||||||||||||||
| New Orleans, LA | Homewood Suites | 4.36 | % | 7/17/2014 | 8/11/2024 | 27,000 | 25,087 | 25,577 | ||||||||||||||||
| Westford, MA | Residence Inn | 4.28 | % | 3/18/2015 | 4/11/2025 | 10,000 | 9,448 | 9,626 | ||||||||||||||||
| Denver, CO | Hilton Garden Inn | 4.46 | % | 9/1/2016 | 6/11/2025 | 34,118 | 33,253 | 33,857 | ||||||||||||||||
| Oceanside, CA | Courtyard | 4.28 | % | 9/1/2016 | 10/1/2025 | 13,655 | 13,394 | 13,576 | ||||||||||||||||
| Omaha, NE | Hilton Garden Inn | 4.28 | % | 9/1/2016 | 10/1/2025 | 22,682 | 22,248 | 22,550 | ||||||||||||||||
| Boise, ID | Hampton | 4.37 | % | 5/26/2016 | 6/11/2026 | 24,000 | 23,522 | 23,813 | ||||||||||||||||
| Burbank, CA | Courtyard | 3.55 | % | 11/3/2016 | 12/1/2026 | 25,564 | 25,081 | 25,564 | ||||||||||||||||
| San Diego, CA | Courtyard | 3.55 | % | 11/3/2016 | 12/1/2026 | 25,473 | 24,992 | 25,473 | ||||||||||||||||
| San Diego, CA | Hampton | 3.55 | % | 11/3/2016 | 12/1/2026 | 18,963 | 18,605 | 18,963 | ||||||||||||||||
| $ | 514,669 | 430,136 | 494,428 | |||||||||||||||||||||
| Unamortized fair value adjustment of assumed debt | 4,556 | 5,229 | ||||||||||||||||||||||
| Unamortized debt issuance costs | (1,909 | ) | (2,628 | ) | ||||||||||||||||||||
| Total | $ | 432,783 | $ | 497,029 | ||||||||||||||||||||
| 2017 (October - December) | $ | 2,701 | ||
| 2018 | 11,071 | |||
| 2019 | 248,408 | |||
| 2020 | 451,164 | |||
| 2021 | 95,311 | |||
| Thereafter | 498,181 | |||
| 1,306,836 | ||||
| Unamortized fair value adjustment of assumed debt | 4,556 | |||
| Unamortized debt issuance costs related to term loans and mortgage debt | (5,921 | ) | ||
| Total | $ | 1,305,471 |
5. Fair Value of Financial Instruments
Except as described below, the carrying value of the Company’s financial instruments approximates fair value due to the short-term nature of these financial instruments.
Debt
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy. Market rates take into consideration general market conditions and maturity. As of September 30, 20172023, the carrying value and the estimated fair value of the Company’s debt were approximately $1.4 billion and $1.3 billion, respectively. As of December 31, 2016, both2022, the carrying value and estimated fair value of the Company’s debt were approximately $1.3 billion.$1.4 billion and $1.3 billion, respectively. Both the carrying value and the estimated fair value of the Company’s debt (as discussed above) isare net of unamortized debt issuance costs related to term loans, senior notes and mortgage debt for each specific year.
Derivative Instruments
Currently, the Company uses interest rate swaps to manage its interest rate risksrisk on variable ratevariable-rate debt. Throughout the terms of these interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one month LIBOR.one-month SOFR plus a 0.10% SOFR spread adjustment. The swaps are designed to effectively fix the interest payments on variable ratevariable-rate debt
13
instruments. These swap instruments are recorded at fair value and, if in an asset position, are included in other assets, net, and, if in a liability position, are included in accounts payable and other liabilities in the Company’s consolidated balance sheets. The fair values of the Company’s interest rate swap agreements are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts, which is considered a Level 2 measurement under the fair value hierarchy. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The following table sets forth information for each of the Company’s interest rate swap agreements outstanding as of September 30, 20172023 and December 31, 2016.2022. All dollar amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
| Fair Value Asset (Liability) |
| ||||||
Notional Amount at |
|
| Origination |
| Effective |
| Maturity |
| Swap Fixed |
| September 30, |
|
| December 31, |
| |||
Active interest rate swaps designated as cash flow hedges at September 30, 2023: |
|
|
|
|
|
| ||||||||||||
$ | 50,000 |
|
| 12/7/2018 |
| 5/18/2020 |
| 1/31/2024 |
| 2.71% |
| $ | 466 |
|
| $ | 1,163 |
|
| 75,000 |
|
| 5/31/2017 |
| 7/31/2017 |
| 6/30/2024 |
| 1.95% |
|
| 1,951 |
|
|
| 3,026 |
|
| 10,000 |
|
| 8/10/2017 |
| 8/10/2017 |
| 6/30/2024 |
| 2.02% |
|
| 254 |
|
|
| 386 |
|
| 50,000 |
|
| 7/2/2019 |
| 7/5/2019 |
| 7/18/2024 |
| 1.64% |
|
| 1,507 |
|
|
| 2,298 |
|
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/18/2024 |
| 1.31% |
|
| 1,820 |
|
|
| 2,675 |
|
| 50,000 |
|
| 8/21/2019 |
| 8/23/2019 |
| 8/30/2024 |
| 1.32% |
|
| 1,873 |
|
|
| 2,703 |
|
| 75,000 |
|
| 8/21/2019 |
| 5/18/2020 |
| 5/18/2025 |
| 1.26% |
|
| 4,633 |
|
|
| 5,225 |
|
| 50,000 |
|
| 6/1/2018 |
| 1/31/2019 |
| 6/30/2025 |
| 2.88% |
|
| 1,882 |
|
|
| 1,655 |
|
| 25,000 |
|
| 12/6/2018 |
| 1/31/2020 |
| 6/30/2025 |
| 2.74% |
|
| 999 |
|
|
| 909 |
|
| 75,000 |
|
| 8/21/2019 |
| 5/18/2021 |
| 5/18/2026 |
| 1.29% |
|
| 6,499 |
|
|
| 6,506 |
|
| 50,000 |
|
| 3/17/2023 |
| 3/20/2023 |
| 3/18/2028 |
| 3.50% |
|
| 1,941 |
|
|
| - |
|
| 50,000 |
|
| 3/17/2023 |
| 3/20/2023 |
| 3/20/2028 |
| 3.49% |
|
| 1,919 |
|
|
| - |
|
| 85,000 |
|
| 12/31/2019 |
| 12/31/2019 |
| 12/31/2029 |
| 1.87% |
|
| 11,667 |
|
|
| 9,511 |
|
| 695,000 |
|
|
|
|
|
|
|
|
|
|
| 37,411 |
|
|
| 36,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Matured interest rate swap at September 30, 2023: |
|
|
|
|
|
|
| |||||||||||
$ | 100,000 |
|
| 4/7/2016 |
| 9/30/2016 |
| 3/31/2023 |
| 1.30% |
|
| - |
|
|
| 824 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 37,411 |
|
| $ | 36,881 |
| |
| Fair Value Asset (Liability) | |||||||||||||||||||
| Hedge Type | Notional Amount at September 30, 2017 | Origination Date | Maturity Date | Swap Fixed Interest Rate | September 30, 2017 | December 31, 2016 | |||||||||||||
| Cash flow hedge | $ | 212,500 | 5/21/2015 | 5/18/2020 | 1.58 | % | $ | 538 | $ | (198 | ) | ||||||||
| Cash flow hedge | 110,000 | 7/2/2015 | 5/18/2020 | 1.62 | % | 166 | (246 | ) | |||||||||||
| Cash flow hedge | 50,000 | 4/7/2016 | 3/31/2021 | 1.09 | % | 1,168 | 1,289 | ||||||||||||
| Cash flow hedge | 100,000 | 4/7/2016 | 3/31/2023 | 1.33 | % | 3,148 | 3,744 | ||||||||||||
| Cash flow hedge | 75,000 | 5/31/2017 | 6/30/2024 | 1.96 | % | 202 | 0 | ||||||||||||
| Cash flow hedge | 10,000 | 8/10/2017 | 6/30/2024 | 2.01 | % | (4 | ) | 0 | |||||||||||
| $ | 557,500 | $ | 5,218 | $ | 4,589 | ||||||||||||||
The Company assesses, both at inception and on an ongoing basis, the effectiveness of its qualifying cash flow hedges. ChangesAs of September 30, 2023, all of the 13 active interest rate swap agreements listed above were designated as cash flow hedges. The change in the fair value onof the effective portion of allCompany’s designated cash flow hedges areis recorded to accumulated other comprehensive income, a component of shareholders’ equity in the Company’s consolidated balance sheets. Changes in fair value on the ineffective portion of all designated cash flow hedges are recorded to interest and other expense, net in the Company’s consolidated statements of operations.
Amounts reported in accumulated other comprehensive income will be reclassified to interest and other expense, net as interest payments are made or received on the Company’s variable-rate derivatives. Net unrealized gains (losses) on cash flow hedges previously recorded to other comprehensive income (loss) that were reclassified to interest and other expense, net during the three months ended September 30, 2017 and 2016, include approximately $(0.4) million and $(0.9) million, respectively, and during the nine months ended September 30, 2017 and 2016, include approximately $(1.8) million and $(2.9) million, respectively. The Company estimates that approximately $(0.6)$20.9 million of net unrealized gains (losses) included in accumulated other comprehensive income at September 30, 20172023 will be reclassified as a net increasedecrease to interest and other expense, net within the next 12 months.
14
The following table presents the effect of derivative instruments in cash flow hedging relationships in the Company’s consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2023 and 2022 (in thousands):
|
| Net Unrealized Gain |
|
| Net Unrealized Gain Reclassified |
| ||||||||||
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Interest rate derivatives in cash flow |
| $ | 7,264 |
|
| $ | 17,130 |
|
| $ | 5,852 |
|
| $ | 1,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Net Unrealized Gain |
|
| Net Unrealized Gain (Loss) Reclassified |
| ||||||||||
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Interest rate derivatives in cash flow |
| $ | 16,682 |
|
| $ | 50,649 |
|
| $ | 16,152 |
|
| $ | (3,213 | ) |
6. Related Parties
The Company has engaged in, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length, and the results of the Company’s operations may behave been different if these transactions were conducted with non-related parties. There have been no changes to the contracts and relationships discussed in the Company’s 2016 Annual Report on2022 Form 10-K. Below is a summary of the significant related party relationships in effect during the nine months ended September 30, 20172023 and 2016.
Glade M. Knight, Executive Chairman of the Company, was Chairman and Chief Executive Officer of Apple Ten. Apple Ten’s advisors, Apple Ten Advisors, Inc. (“A10A”) andowns Apple Realty Group, Inc. (“ARG”), are wholly owned by Mr. Knight.which receives support services from the Company and reimburses the Company for the cost of these services as discussed below. Mr. Knight is also currently a partner and Chief Executive Officer of Energy 11 GP, LLC and Energy Resources 12 GP, LLC, which are the respective general partners of Energy 11, L.P. and Energy Resources 12, L.P. Justin G. Knight, the Company’s President and Chief Executive Officer, and a member, each of the Company’s Board of Directors, also served as President of Apple Ten prior to the merger.
The Company provided to Apple Ten the advisoryprovides support services, contemplated under the A10A advisory agreement and received an annual advisory fee and was reimbursed by Apple Ten forincluding the use of the Company’s employees and corporate office, to ARG and other costs associated withis reimbursed by ARG for the advisory agreement. Additionally,cost of these services. Under this cost sharing structure, amounts reimbursed to the Company provided support servicesinclude both compensation for personnel and office related costs (including office rent, utilities, office supplies, etc.) used by ARG. The amounts reimbursed to Apple Ten’s advisors, who agreed to reimburse the Company for itsare based on the actual costs in providing these services. Bothof the advisory feesservices and a good faith estimate of the proportionate amount of time incurred by the Company’s employees on behalf of ARG. Total reimbursed costs receivedallocated by the Company from Apple Ten were recorded as general and administrative expense by Apple Ten and reductions to general and administrative expense by the Company and, therefore, the termination of the subcontract agreement had no financial impact on the combined company after the effective time of the merger. After the merger, the Company has continued and will continue to provide support services to ARG for activities unrelated to Apple Ten.
As part of the cost sharing arrangement, certain day-to-day transactions may result in amounts due to or from the Company and ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under this cash management process, each company may advance or defer up to $1$1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.
The Company, through its wholly-owned subsidiary, Apple Air Holding, LLC, (“Apple Air”)
From time to time, the Company also utilizes aircraft, owned through two entities, one ofby an entity which is owned by the Company’s Executive Chairman, and the other, its President and Chief Executive Officer, for acquisition, asset management, renovation, investor, corporate and public relations and other business purposes, and reimburses these entitiesthis entity at third partythird-party rates. Total amountscosts incurred for the use of the aircraft during the nine months ended September 30, 20172023 and 20162022 were approximately $0.1less than $0.1 million and $0.2 million, respectively, related to aircraft owned through these two entities and are included in general and administrative expenses in the Company’s consolidated statements of operations.
15
7. Shareholders’ Equity
Distributions
For the three and nine months ended September 30, 2017 and 2016,2023, the Company paid distributions of $0.30$0.24 and $0.80, per common share, respectively, for a total of $66.9$54.8 million and $57.2$183.1 million, respectively. ForDuring the three and nine months ended September 30, 2017 and 2016,2022, the Company paid distributions of $0.90$0.17 and $0.38 per common share, respectively, for a total of $200.7$38.8 million and $161.9$86.8 million, respectively. Additionally, in September 2017,2023, the Company declared a monthly cash distribution of $0.10$0.08 per common share, totaling $22.3$18.3 million, which was recorded as a payable as of September 30, 20172023 and paid in on October 2017. As of December 31, 2016, a16, 2023. In addition to the regular monthly cash distribution of $0.10$0.08 per common share for December 2022, the Board of Directors approved a special one-time distribution of $0.08 per common share for a combined distribution of $0.16 per common share, totaling $22.3$36.6 million, which was recorded as a payable as of December 31, 2022 and paid in January 2017.2023. These accrued distributions were included in accounts payable and other liabilities in the Company’s consolidated balance sheets.
Issuance of Shares
On February 28, 2017,August 12, 2020, the Company entered into an equity distribution agreement with Robert W. Baird & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Canaccord Genuity Inc., FBR Capital Markets & Co., Jefferies LLC, KeyBanc Capital Markets Inc. and Scotia Capital (USA) Inc. (collectively, the “Sales Agents”), pursuant to which the Company may sell, from time to time, up to an aggregate of $300$300 million of its common shares through the Sales Agentsunder an at-the-market offering program (the “ATM Program”) under the Company’s prior shelf registration statement and the current shelf registration statement. Since inception of the ATM Program in August 2020 through September 30, 2023, the Company sold approximately 4.7 million common shares under its ATM Program at a weighted-average market sales price of approximately $16.26 per common share and received aggregate gross proceeds of approximately $76.0 million and proceeds net of offering costs, which included $0.9 million of commissions, of approximately $75.1 million. The Company used the net proceeds from the sale of these shares (all during 2021) primarily to pay down borrowings under its then-existing $425 million revolving credit facility and used the corresponding increased availability under the $425 million revolving credit facility for general corporate purposes, including acquisitions of hotel properties. As of September 30, 2023, approximately $224.0 million remained available for issuance under the ATM Program. No shares were sold under the Company’s ATM Program during the nine months ended September 30, 2023. The Company plans to use future net proceeds from the sale of shares under the ATM Program for general corporate purposes which may include, among other things, acquisitions of additional properties, the repayment of outstanding indebtedness, capital expenditures, improvement of properties in its portfolio and working capital. The Company may also use the net proceeds to acquire another REIT or other company that invests in income producing properties.
Share Repurchases
In May 2023, the Company’s Board of Directors approved a one-year extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $338.7 million (the “Share Repurchase Program”). The Share Repurchase Program may be suspended or terminated at any time by the Company and will end in July 2024 if not terminated or extended earlier. During the nine months ended September 30, 2017, the Company had no sales under the ATM Program.
8. Compensation Plans
The Company annually establishes an executive incentive plan (“2017for its executive management team. Under the incentive plan for 2023 (the “2023 Incentive Plan”), effective January 1, 2017, and established incentive goals for 2017. Under the 2017 Incentive Plan, participants are eligible to receive a bonusincentive compensation based on the achievement of certain 20172023 performance measures, consistingwith one-half (50%) of incentive compensation based on operational performance goals and metrics (including targeted Modified Funds from Operations per share, Comparable Hotels revenue per available room growth and Adjusted Hotel EBITDA Margin growth) andone-half (50%) of incentive compensation based on shareholder return metrics. With respect to the shareholder return metrics, (including75% of the target will be based on shareholder return relative to a peer group and 25% will be based on total shareholder return metrics over one-year, two-year, and two-year periods). The components ofthree-year periods. With respect to the operational performance goals and metrics, and shareholder return metrics are equally weighted and the two metrics each account for 50%25% of the target will be based on modified funds from operations per share (as defined within this Quarterly Report on Form 10-Q), 25% of the target will be based on total revenues of the Company and 50% of the target incentive compensation. Thewill be based on operational performance goals, including management of capital structure; evaluation and pursuit of accretive transactions; management of labor costs and improvement of employee productivity; enhancement of environmental, social and governance reporting; and enhancement of internal business intelligence tools.
16
At September 30, 2023, the range of potential aggregate payouts under the 20172023 Incentive Plan is $0was $0 - $18$27.1 million. Based on performance through September 30, 2017,2023, the Company has accrued approximately $4.7$14.9 million as a liability for potential executive bonusincentive compensation payments under the 20172023 Incentive Plan, which is included in accounts payable and other liabilities in the Company’s consolidated balance sheet as of September 30, 2017.2023. Compensation expense recognized by the Company under the 20172023 Incentive Plan is included in general and administrative expenseexpenses in the Company’s consolidated statementsstatement of operations and totaled approximately $1.2$4.9 million and $4.7$14.9 million for the three and nine months ended September 30, 2017,2023, respectively. Approximately 25%25% of target awards under the 20172023 Incentive Plan, if any, will be paid in cash, and 75%75% will be issued in stockcommon shares under the Company’s 2014 Omnibus Incentive Plan, approximately two-thirds of which would vest at the end of 2017will be unrestricted and one-third of which wouldwill vest atin December 2024.
Under the end of 2018. During 2016 and 2015, comparable executive incentive plans were approved by the Compensation Committee (“2016 Incentive Plan” and “2015plan for 2022 (the “2022 Incentive Plan”) that were effective January 1, 2016 and January 1, 2015, respectively. The, the Company recorded a (decrease) increase of approximately $(0.8)$4.0 million and $2.8$12.0 million, torespectively, in general and administrative expense related to the 2016 Incentive Planexpenses in the Company’sits consolidated statementsstatement of operations for the three and nine months ended September 30, 2016, respectively, with2022.
Share-Based Compensation Awards
The following table sets forth information pertaining to the decrease resulting from the reduction of the previously recorded executive bonus accrual due to lower anticipated 2016 performance.
|
| 2022 Incentive |
|
|
| 2021 Incentive |
|
| ||
Period common shares issued |
| First Quarter 2023 |
|
|
| First Quarter 2022 |
|
| ||
|
|
|
|
|
|
|
| |||
Common shares earned under each incentive plan |
|
| 935,189 |
|
|
|
| 868,079 |
|
|
Common shares surrendered on issuance date to |
|
| 263,026 |
|
|
|
| 245,597 |
|
|
Common shares earned and issued under each |
|
| 672,163 |
|
|
|
| 622,482 |
|
|
Average of the high and low stock price on issuance date |
| $ | 16.70 |
|
|
| $ | 17.79 |
|
|
Total share-based compensation earned, including the |
| $ | 15.6 |
| (1) |
| $ | 15.4 |
| (2) |
Of the total common shares earned and issued, total |
|
| 360,176 |
|
|
|
| 338,032 |
|
|
Of the total common shares earned and issued, total |
|
| 311,987 |
|
|
|
| 284,450 |
|
|
|
|
|
|
|
|
|
| |||
Restricted common shares vesting date |
| December 8, 2023 |
|
|
| December 9, 2022 |
|
| ||
Common shares surrendered on vesting date to satisfy |
| n/a |
|
|
|
| 114,147 |
|
| |
Additionally, in conjunction with the appointment of five new officers of the Company on April 1, 2020, the Company issued to the new officer group a total of approximately 200,000 restricted common shares with an aggregate grant date fair value of approximately $1.8 million. For each grantee, the restricted shares vested on March 31, 2023. The expense associated with the awards was amortized over the 3-year vesting period. For the nine months ended September 30, 20172023 and 2016,2022, the Company recognized approximately $0.3$0.1 million and $1.2$0.4 million, respectively, of share basedshare-based compensation expense related to the unvested restricted sharethese awards.
17
9. Subsequent Events
On October 11, 2023, the Company commencedcompleted the purchase of two existing hotels and an existing free-standing parking garage in Salt Lake City, Utah, including a derivative action in the United States District Court175-room Courtyard and a 159-room Hyatt House, for the Eastern Districta combined gross purchase price of Virginia. On November 2, 2016, the parties reached an agreement in principle to settle the litigation, which the Court approved by order dated March 16, 2017. In January 2017, the Company funded the settlement amount of $32 million, which was included in accounts payable and other liabilities in its consolidated balance sheet as of December 31, 2016, and received $10 million of proceeds from its director and officer insurance carriers, which was included in other assets, net in its consolidated balance sheet as of December 31, 2016 and the net $22 million was included in transaction and litigation costs (reimbursements) in the Company’s consolidated statement of operations for the year then ended. In May 2017, the Company received an additional $2.6 million of proceeds from its director and officer insurance carriers, which was included as a reduction in transaction and litigation costs (reimbursements) in the Company’s consolidated statements of operations for the nine months ended September 30, 2017.approximately $91.5 million. The Company does not anticipate additional costs or reimbursements relatedutilized its available cash on hand and borrowings under its Revolving Credit Facility to this litigation.
On February 24, 2017, Plaintiff Marsha Wilchfort, purportedly a shareholder of Apple REIT Six, Inc. (“Apple Six”), Apple Seven and Apple Eight, filed a class action against, among others, the Company and the former individual directors of Apple Six, Apple Seven and Apple Eight, including Mr. Glade Knight, on behalf of all then-existing shareholders and former shareholders of Apple Six, Apple Seven and Apple Eight, who purchased additional shares under Apple Six’s, Apple Seven’s and Apple Eight’s DRIP between July 17, 2007 and December 2012 (in the case of Apple Six shareholders) or June 30, 2013 (in the case of Apple Seven and Apple Eight shareholders). The complaint was filed in the United States District Court for the Eastern District of New York and alleges, among other items, breach of contract under Virginia law, tortious interference and breach of implied duty of good faith and fair dealing. The complaint alleges that the prices at which Plaintiff and the purported class members purchased additional shares through the DRIPs were not indicative of the true value of the units of Apple Six, Apple Seven and Apple Eight.
On October 18, 2023, the Company completed the purchase of the existing 146-room Residence Inn in Renton, Washington for a total gross purchase price of $55.5 million. The Company utilized its common shareholders.
On October 2017,19, 2023, the Company declared a regular monthly cash distribution of $0.10$0.08 per common share for the month of November 2017.share. The distribution is payable on November 15, 2017.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended.Act. Forward-looking statements are typically identified by use of termsstatements that include phrases such as “may,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “target,” “goal,” “plan,” “should,” “will,” “predict,” “potential,” “outlook,” “strategy,” and similar expressions that convey the uncertainty of future events or outcomes. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Apple Hospitality REIT, Inc. (the “Company”)the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties;properties and redeploy proceeds; the anticipated timing and frequency of shareholder distributions; the ability of the Company to fund capital obligations; the ability of the Company to successfully integrate pending transactions and implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions;conditions (including the potential effects of inflation or a recessionary environment); reduced business and leisure travel due to geopolitical uncertainty, including terrorism, travel-related health concerns, including COVID-19 or other widespread outbreaks of infectious or contagious diseases in the U.S.; inclement weather conditions, including natural disasters such as hurricanes, earthquakes and wildfires; government shutdowns, airline strikes or other disruptions; adverse changes in the real estate and real estate capital markets; financing risks; the outcome of current and futurechanges in interest rates; litigation including any legal proceedings that have been or may be instituted against the Company or others;risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a real estate investment trust (“REIT”).REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. In addition, the Company’s qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code.Code of 1986, as amended (the “Code”). Readers should carefully review the risk factors described in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to those discussed in the section titled “Risk Factors” in the Company’s Annual Report on2022 Form 10-K for the year ended December 31, 2016.10-K. Any forward-looking statement that the Company makes speaks only as of the date of this Quarterly Report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events, or otherwise, except as required by law.
The following discussion and analysis should be read in conjunction with the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the information contained in the Company’s Annual Report on2022 Form 10-K for the year ended December 31, 2016.
Overview
The Company is a Virginia corporation that has elected to be treated as a REIT for federal income tax purposes. The Company is self-advised and invests in income-producing real estate, primarily in the lodging sector, in the United States.U.S. As of September 30, 2017,2023, the Company owned 237220 hotels with an aggregate of 30,18828,929 rooms located in urban, high-end suburban and developing markets throughout 3337 states includingand one hotel with 316 rooms classified as held for sale, which was soldproperty leased to an unrelated party in October 2017. Allthird parties. Substantially all of the Company’s hotels operate under Marriott or Hilton brands. The hotels are operated and managed under separate management agreements with 2216 hotel management companies, none of which are affiliated with the Company. The Company’s common shares are listed on the New York Stock ExchangeNYSE under the ticker symbol “APLE.”
2023 Hotel Portfolio Activities
The Company continually monitors market conditions and attempts to maximize shareholder value by investing in properties that it believes provide superior value inover the long term. Consistent with this strategy and the Company’s focus on investing in select-servicerooms-focused hotels, the Company acquired three newly constructed hotels for an aggregate purchase price of approximately $56.4 million during the first nine months of 2017: a 124-room Courtyard by Marriott hotel in Fort Worth, Texas and a 104-room Hilton Garden Inn and 106-room Home2 Suites dual-branded hotel in Birmingham, Alabama. The purchase price for each of these properties was funded through borrowings on the Company’s $540 million revolving credit facility (the “revolving credit facility”). In October 2017,ended September 30, 2023, the Company completed the purchaseacquisition of two additional hotels (a 136-room Residence Inn hotelan existing 154-room Courtyard in Salt Lake City, Utah andCleveland, Ohio for a 179-room Residence Inn hotel in Portland, Maine) for an aggregategross purchase price of approximately $81.3 million. The$31.0 million, utilizing its available cash and borrowings under its Revolving Credit Facility.
As of September 30, 2023, the Company also hashad separate outstanding contracts for the potential purchase of two additionalsix hotels that are under constructionas well as one free-standing parking garage for a total combined purchase price of approximately $64.8 million, which$359.0 million. Five of the seven properties under contract are existing. The Company completed the purchase of four of the existing properties, including two hotels and one free-standing parking garage in Salt Lake City, Utah and one hotel in Renton, Washington on October 11, 2023 and October 18, 2023, respectively. See Note 9 titled “Subsequent Events” in the Company’s Unaudited Consolidated Financial Statements and Notes
19
thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for more information. The Company plans to complete the purchase of the one remaining existing property in the fourth quarter of 2023. The other two purchase contracts are for hotels under development, with the Madison, Wisconsin hotel currently planned to be completed and opened for business overin mid-2024 and the next 12 months from September 30, 2017,Nashville, Tennessee hotel currently planned to be completed and opened for business in 2025, at which timerespective times the Company expects to complete the purchases of these hotels. Although the Company is working towards completing the acquisitions of the three remaining properties, in each case there are a number of conditions to closing that have not yet been satisfied, and there can be no assurance that closings on these hotelsproperties will occur under the outstanding purchase contracts. If the sellers meet all of the conditions to closing, the Company is expectedobligated to specifically perform under the applicable purchase contracts and acquire these properties. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the properties under contract if closings occur.
For its existing portfolio, the Company monitors each property’s profitability, market conditions and capital requirements and attempts to maximize shareholder value by disposing of properties when it believes that superior value can be provided by the proceeds from the sale of the property. The Company did not dispose of any properties during the nine months ended September 30, 2023.
New York Independent Boutique Hotel Lease
During the nine months ended September 30, 2023, the Company entered into an operating lease for an initial 15-year term with a third-party hotel operator at its independent boutique hotel in New York, New York for all hotel operations of the hotel's 210 hotel rooms. Lease revenue from this property is recorded in other revenue in the Company's consolidated statements of operations and comprehensive income. As a result
Hotel Operations
As of September 30, 2023, the Company completed the saleowned 220 hotels with a total of its 224-room Hilton hotel in Dallas, Texas, which was classified28,929 rooms as held for sale ascompared to 218 hotels with a total of December 31, 2016, for approximately $56.1 million. Also, on October 5, 2017, the Company completed the sale of its 316-room Marriott hotel in Fairfax, Virginia, which was classified as held for sale28,693 rooms as of September 30. 2017, for a gross sales price30, 2022. Results of $41.5 million. The Company used the net proceeds from the sales to pay down borrowings on its revolving credit facility.
In evaluating financial condition and operating performance, the most important indicators on which the Company focuses are revenue measurements, such as average occupancy, average daily rate (“ADR”) and revenue per available room (“RevPAR”), and expenses, such as hotel operating expenses, general and administrative expenses and other expenses described below.
20
The following is a summary of the results from operations of the Company’s hotels for their respective periods of ownership by the Company.Company:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||||
(in thousands, except |
| 2023 |
| Percent |
|
| 2022 |
| Percent |
| Percent |
|
| 2023 |
| Percent |
|
| 2022 |
| Percent |
| Percent |
| ||||||||||
Total revenue |
| $ | 358,260 |
|
| 100.0 | % |
| $ | 341,150 |
|
| 100.0 | % |
| 5.0 | % |
| $ | 1,031,344 |
|
| 100.0 | % |
| $ | 939,296 |
|
| 100.0 | % |
| 9.8 | % |
Hotel operating |
|
| 203,710 |
|
| 56.9 | % |
|
| 193,067 |
|
| 56.6 | % |
| 5.5 | % |
|
| 589,388 |
|
| 57.1 | % |
|
| 529,584 |
|
| 56.4 | % |
| 11.3 | % |
Property taxes, |
|
| 21,678 |
|
| 6.1 | % |
|
| 19,052 |
|
| 5.6 | % |
| 13.8 | % |
|
| 61,347 |
|
| 5.9 | % |
|
| 56,510 |
|
| 6.0 | % |
| 8.6 | % |
General and |
|
| 11,079 |
|
| 3.1 | % |
|
| 10,271 |
|
| 3.0 | % |
| 7.9 | % |
|
| 34,640 |
|
| 3.4 | % |
|
| 30,216 |
|
| 3.2 | % |
| 14.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Depreciation and |
|
| 45,498 |
|
|
|
|
| 45,135 |
|
|
|
| 0.8 | % |
|
| 137,398 |
|
|
|
|
| 135,781 |
|
|
|
| 1.2 | % | ||||
Gain on sale of real |
|
| - |
|
|
|
|
| 1,785 |
|
|
| n/a |
|
|
| - |
|
|
|
|
| 1,785 |
|
|
| n/a |
| ||||||
Interest and other |
|
| 17,470 |
|
|
|
|
| 14,933 |
|
|
|
| 17.0 | % |
|
| 50,973 |
|
|
|
|
| 44,785 |
|
|
|
| 13.8 | % | ||||
Income tax expense |
|
| 313 |
|
|
|
|
| 1,331 |
|
|
|
| -76.5 | % |
|
| 874 |
|
|
|
|
| 1,712 |
|
|
|
| -48.9 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income |
|
| 58,512 |
|
|
|
|
| 59,146 |
|
|
|
| -1.1 | % |
|
| 156,724 |
|
|
|
|
| 142,493 |
|
|
|
| 10.0 | % | ||||
Adjusted Hotel |
|
| 132,161 |
|
|
|
|
| 129,166 |
|
|
|
| 2.3 | % |
|
| 380,154 |
|
|
|
|
| 353,617 |
|
|
|
| 7.5 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Number of hotels |
|
| 220 |
|
|
|
|
| 218 |
|
|
|
| 0.9 | % |
|
| 220 |
|
|
|
|
| 218 |
|
|
|
| 0.9 | % | ||||
ADR |
| $ | 159.36 |
|
|
|
| $ | 157.91 |
|
|
|
| 0.9 | % |
| $ | 157.61 |
|
|
|
| $ | 150.02 |
|
|
|
| 5.1 | % | ||||
Occupancy |
|
| 77.1 | % |
|
|
|
| 75.7 | % |
|
|
| 1.8 | % |
|
| 75.8 | % |
|
|
|
| 73.6 | % |
|
|
| 3.0 | % | ||||
RevPAR |
| $ | 122.91 |
|
|
|
| $ | 119.52 |
|
|
|
| 2.8 | % |
| $ | 119.48 |
|
|
|
| $ | 110.40 |
|
|
|
| 8.2 | % | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
| (in thousands, except statistical data) | 2017 | Percent of Revenue | 2016 | Percent of Revenue | Percent Change | 2017 | Percent of Revenue | 2016 | Percent of Revenue | Percent Change | ||||||||||||||||||||||||||||||
| Total revenue | $ | 324,926 | 100.0 | % | $ | 276,471 | 100.0 | % | 17.5 | % | $ | 949,555 | 100.0 | % | $ | 758,594 | 100.0 | % | 25.2 | % | ||||||||||||||||||||
| Hotel operating expense | 179,829 | 55.3 | % | 153,337 | 55.5 | % | 17.3 | % | 528,295 | 55.6 | % | 417,965 | 55.1 | % | 26.4 | % | ||||||||||||||||||||||||
| Property taxes, insurance and other expense | 17,598 | 5.4 | % | 14,787 | 5.3 | % | 19.0 | % | 52,346 | 5.5 | % | 40,315 | 5.3 | % | 29.8 | % | ||||||||||||||||||||||||
| Ground lease expense | 2,831 | 0.9 | % | 2,615 | 0.9 | % | 8.3 | % | 8,486 | 0.9 | % | 7,587 | 1.0 | % | 11.8 | % | ||||||||||||||||||||||||
| General and administrative expense | 5,350 | 1.6 | % | 2,623 | 0.9 | % | 104.0 | % | 18,255 | 1.9 | % | 12,511 | 1.6 | % | 45.9 | % | ||||||||||||||||||||||||
| Transaction and litigation costs (reimbursements) | - | 36,452 | n/a | (2,586 | ) | 37,861 | n/a | |||||||||||||||||||||||||||||||||
| Loss on impairment of depreciable real estate assets | - | 5,471 | n/a | 7,875 | 5,471 | 43.9 | % | |||||||||||||||||||||||||||||||||
| Depreciation expense | 44,110 | 37,343 | 18.1 | % | 131,770 | 104,651 | 25.9 | % | ||||||||||||||||||||||||||||||||
| Interest and other expense, net | 12,024 | 10,156 | 18.4 | % | 35,590 | 28,519 | 24.8 | % | ||||||||||||||||||||||||||||||||
| Gain (loss) on sale of real estate | (157 | ) | - | n/a | 15,983 | - | n/a | |||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 203 | (7 | ) | n/a | 712 | 616 | 15.6 | % | ||||||||||||||||||||||||||||||||
| Number of hotels owned at end of period | 237 | 236 | 0.4 | % | 237 | 236 | 0.4 | % | ||||||||||||||||||||||||||||||||
| ADR | $ | 136.73 | $ | 136.04 | 0.5 | % | $ | 135.97 | $ | 135.88 | 0.1 | % | ||||||||||||||||||||||||||||
| Occupancy | 80.0 | % | 80.2 | % | -0.2 | % | 78.7 | % | 78.9 | % | -0.3 | % | ||||||||||||||||||||||||||||
| RevPAR | $ | 109.45 | $ | 109.07 | 0.3 | % | $ | 106.96 | $ | 107.18 | -0.2 | % | ||||||||||||||||||||||||||||
Comparable Hotels Operating Results
The following table reflects certain operating statistics for the Company’s 236220 hotels owned and held for use as of September 30, 20172023 (“Comparable Hotels”). The Company defines metrics from Comparable Hotels as results generated by the 236220 hotels owned and held for use as of the end of the reporting period. These metrics do not include the results generated by the Fairfax, Virginia Marriott hotel which was held for sale as of September 30, 2017 and sold on October 5, 2017. For the hotels acquired during the current reporting period and prior year,periods shown, the Company has included, as applicable, results of those hotels for periods prior to the Company’s ownership using information provided by the properties’ prior owners at the time of acquisition and not adjusted by the Company. This information has not been audited, either for the periods owned or prior to ownership by the Company. For dispositions, results have been excluded for the Company’s period of ownership.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
| ADR | $ | 136.83 | $ | 134.79 | 1.5 | % | $ | 135.84 | $ | 134.88 | 0.7 | % | ||||||||||||
| Occupancy | 80.2 | % | 80.4 | % | -0.2 | % | 78.8 | % | 78.7 | % | 0.1 | % | ||||||||||||
| RevPAR | $ | 109.77 | $ | 108.32 | 1.3 | % | $ | 107.10 | $ | 106.20 | 0.8 | % | ||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| Percent Change |
|
| 2023 |
|
| 2022 |
|
| Percent Change |
| ||||||
ADR |
| $ | 159.36 |
|
| $ | 157.65 |
|
|
| 1.1 | % |
| $ | 157.54 |
|
| $ | 149.98 |
|
|
| 5.0 | % |
Occupancy |
|
| 77.1 | % |
|
| 75.7 | % |
|
| 1.8 | % |
|
| 75.8 | % |
|
| 73.5 | % |
|
| 3.1 | % |
RevPAR |
| $ | 122.91 |
|
| $ | 119.31 |
|
|
| 3.0 | % |
| $ | 119.34 |
|
| $ | 110.23 |
|
|
| 8.3 | % |
Same Store Operating Results
The following table reflects certain operating statistics for the Company’s 177217 hotels owned and held for use by the Company as of January 1, 20162022 and during the entirety of the reporting periods being compared.compared (“Same Store Hotels”). This information has not been audited.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
| ADR | $ | 138.86 | $ | 136.60 | 1.7 | % | $ | 137.09 | $ | 136.09 | 0.7 | % | ||||||||||||
| Occupancy | 80.2 | % | 80.5 | % | -0.4 | % | 79.0 | % | 79.0 | % | 0.0 | % | ||||||||||||
| RevPAR | $ | 111.42 | $ | 110.02 | 1.3 | % | $ | 108.23 | $ | 107.49 | 0.7 | % | ||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| Percent Change |
|
| 2023 |
|
| 2022 |
|
| Percent Change |
| ||||||
ADR |
| $ | 158.92 |
|
| $ | 157.34 |
|
|
| 1.0 | % |
| $ | 157.16 |
|
| $ | 149.67 |
|
|
| 5.0 | % |
Occupancy |
|
| 77.2 | % |
|
| 75.7 | % |
|
| 2.0 | % |
|
| 75.8 | % |
|
| 73.6 | % |
|
| 3.0 | % |
RevPAR |
| $ | 122.64 |
|
| $ | 119.08 |
|
|
| 3.0 | % |
| $ | 119.18 |
|
| $ | 110.15 |
|
|
| 8.2 | % |
21
As discussed above, hotel performance is impacted by many factors, including the economic conditions in the U.S. as well as each individual locality. The Company’s Same Store Hotels revenue and operating results improved during the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, which is consistent with the overall lodging industry. Hotel occupancy was negatively impacted in many markets by the Omicron variant of COVID-19 during the first quarter of 2022, contributing to an increase of the Company’s Same Store Hotels RevPAR of approximately 8.2% for the nine months ended September 30, 2023, compared to the same period in 2022.
Revenues
The Company’s principal source of revenue is hotel revenue consisting of room, food and beverage, and other related revenue. For the three months ended September 30, 20172023 and 2016,2022, the Company had total revenue of $324.9$358.3 million and $276.5$341.2 million, respectively. For the nine months ended September 30, 20172023 and 2016,2022, the Company had total revenue of $949.6 million$1.0 billion and $758.6$939.3 million, respectively. For the three months ended September 30, 20172023 and 2016,2022, respectively, Comparable Hotels achieved combined average occupancy of 80.2%77.1% and 80.4%75.7%, ADR of $136.83$159.36 and $134.79$157.65 and RevPAR of $109.77$122.91 and $108.32.$119.31. For the nine months ended September 30, 20172023 and 2016,2022, respectively, Comparable Hotels achieved combined average occupancy of 78.8%75.8% and 78.7%73.5%, ADR of $135.84$157.54 and $134.88$149.98 and RevPAR of $107.10$119.34 and $106.20.$110.23. ADR is calculated as room revenue divided by the number of rooms sold, and RevPAR is calculated as occupancy multiplied by ADR.
Compared to the same periods in 2016,2022, during the three and nine months ended September 30, 2017,2023, the Company experienced increases in ADR and occupancy, resulting in increases of 1.3%3.0% and 0.8%8.3%, respectively, in RevPAR for Comparable Hotels, respectively.Hotels. Revenue growth in the three and nine months ended September 30, 2023, as compared to the same periods of 2022, was led by continued strength in leisure transient and small group demand, with increased demand from corporate business. Additionally, occupancy during the first quarter of 2022 was negatively impacted in many markets by the Omicron variant of COVID-19. For the three and nine months ended September 30, 2023, the Company’s suburban markets continued to see strong demand with urban markets recovering more meaningfully as compared to the same periods in 2022. The Company’sCompany expects revenue trends to continue, however, future year-over-year revenue growth duringwill likely be at a lower rate given the favorable first nine months of 2017 wasthe year comparison between 2023 and 2022 due, in large part, to the Omicron variant of COVID-19 negatively impacting the first quarter of 2022. Furthermore, future revenues could be negatively impacted by, among other things, historical seasonal trends, deterioration of consumer sentiment, a decline in the Los Angeles market due to outsized growth in 2016 from the Porter Ranch gas leak. The Company anticipates that with its geographically diverse portfolio of upscale and upper midscale select-service hotels, on a comparable basis, overall RevPAR growth for the remainder of the year will approximate industry averages. Although certain markets will vary based on local supply/demand dynamics and local market economic conditions, with continued overall room rate improvement combined with expected stable overall demand growth compared to supply growth, the Company, on a comparable basis, and industry are forecasting a low single-digit percentage increase in revenue for the full year of 2017 as compared to 2016, with this trend expected to continue into 2018. Markets with above average growth in the third quarter and first nine months of 2017 for the Company and industry included Richmond, Knoxville, Kansas City, St. Louis and San Diego. Markets that were below average for the Company and industry included Dallas, Austin and Philadelphia. Additionally, in the third quarter of 2017, Houston and certain Florida markets experienced an increase in demand due to evacuation and restoration efforts related to hurricanes Harvey and Irma, which led to increased RevPAR for the Company and industry in those markets. While certain of the Company’s hotels incurred minor wind and water related damage from the hurricanes, the overall impact was not material.
Hotel Operating Expense
Hotel operating expense consists of direct room operating expense, hotel administrative expense, sales and marketing expense, utilities expense, repair and maintenance expense, franchise fees and management fees. ForHotel operating expense for the three months ended September 30, 20172023 and 2016, respectively, hotel operating expense2022 totaled $179.8$203.7 million and $153.3$193.1 million, respectively, or 55.3%56.9% and 55.5%56.6% of total revenue for eachthe respective period. Forperiods, and for the nine months ended September 30, 20172023 and 2016, respectively, hotel operating expense2022 totaled $528.3$589.4 million and $418.0$529.6 million, respectively, or 55.6%57.1% and 55.1%56.4% of total revenue for eachthe respective period. Overall hotel operational expenses for the first nine months of 2017 include the results of the 57 hotels acquired during 2016, including one hotel acquired on July 1, 2016 and 56 hotels acquiredperiods, which is consistent with the Apple Ten merger effective September 1, 2016, for the full period and three hotels acquiredincreases in 2017 from their respective dates of acquisition. Expenses for 2017 also include the results of one hotel sold on April 20, 2017 until the date of sale. Expenses for the first nine months of 2016 include the results of one hotel sold on December 6, 2016 and the hotel sold on April 20, 2017 for the full period, and the results of one hotel acquired on July 1, 2016 from the date of acquisition and the 56 hotels acquired in the Apple Ten merger for the month of September 2016. For the Company’s Comparable Hotels hotel operating expense as a percentage of revenue increased approximately 20 and 90 basis points, respectively,for the same periods. The increase in hotel operating expense for the three and nine months ended September 30, 20172023, as compared to the same periods in 2016. During2022, was due to increased labor, repairs and maintenance and utility costs driven by increased staff and inflationary pressures throughout the firstoverall economy. Occupancy increased for the nine months of 2017, the Company experienced increases in labor costs as a percentage of revenue, which was the primary cause of the increase in hotel operating expense. Although labor costs were the primary cause of the increase in hotel operating expenses in the third quarter of 2017, these increases did moderateended September 30, 2023, as compared to the same period of 2022, in 2016.part due to negative impacts from the Omicron variant of COVID-19 throughout most markets during the first quarter of 2022. Adding staff to meet increased demand has been challenging, and the Company’s hotels have often done so at higher wage rates or with more expensive contract labor as compared to 2022. Likewise, broader inflationary pressures throughout the overall economy and global tensions have driven shortages and cost increases for materials and supplies such as food and equipment. The Company anticipates continued increases in labor costs due to government regulations surrounding wages, healthcare and other benefits, other wage-related initiatives and lower unemployment rates. Although operating expenses will increase as revenue increases, the Company will continuecontinues to work with its management companies to reduce costs as a percentagerealize operational efficiencies and mitigate the impact of revenue where possible while maintaining qualitycost pressures resulting from inflation and servicestaffing challenges. The Company will continue to evaluate and work with its management companies to implement adjustments to the hotel operating model in response to continued changes in the operating environment and guest preferences, including evaluating staffing levels at each property.
Property Taxes, Insurance and Other Expense
Property taxes, insurance and other expense for the three months ended September 30, 20172023 and 2016 totaled $17.62022 was $21.7 million and $14.8$19.1 million, respectively, or 5.4%6.1% and 5.3% of total revenue, respectively, and for Comparable Hotels, 5.4% and 5.5%5.6% of total revenue for eachthe respective period.periods. For the nine months ended September 30, 20172023 and 2016,2022, property taxes, insurance and other expense totaled $52.3$61.3 million and $40.3$56.5 million, respectively, or 5.5%5.9% and 5.3% of total revenue, respectively, and for Comparable Hotels, 5.5%6.0% of total revenue for each period. For the Company’s Comparable Hotels, real estaterespective periods. The increases in property taxes, increased slightly during the first nine months of 2017 comparedinsurance, and other expense were primarily due to the first nine months of 2016, with tax increases atin insurance premiums and increases in property taxes in certain locations due to the reassessment of property values by localities related to the improved economy, partially offset by decreases at other locations due to successful appeals of tax assessments. With the economy continuing to improve, the Company anticipates continued increases in property tax assessments during the remainder of 2017. The Company will continue to aggressively appeal tax assessments in certain jurisdictions toin an attempt to minimize tax increases, as warranted.
22
General and Administrative Expense
General and administrative expense for the three months ended September 30, 20172023 and 20162022 was $5.4$11.1 million and $2.6$10.3 million, respectively, or 1.6%3.1% and 0.9%3.0% of total revenue respectively.for the respective periods. For the nine months ended September 30, 20172023 and 2016,2022, general and administrative expense was $18.3$34.6 million and $12.5$30.2 million, respectively, or 1.9%3.4% and 1.6%3.2% of total revenue respectively.for the respective periods. The principal components of general and administrative expense are payroll and related benefit costs, executive incentive compensation, legal fees, accounting fees and reporting expenses. In addition, during the first eight months of 2016, the Company provided to Apple Ten the advisory services contemplated under their advisory agreement, and the Company received fees and reimbursement of expenses payable under the advisory agreement from Apple Ten totaling approximately $3.5 million, which were recorded as reductions to general and administrative expenses. Effective September 1, 2016, in connection with the completion of the Apple Ten merger, the advisory agreement was terminated and the Company no longer receives the fees and reimbursement of expenses payable under the advisory agreement from Apple Ten, which resulted in anThe increase in the Company’s general and administrative expenses from the prior period. Although expense for the Company in total dollars increased from the prior period, since both the advisory fees and reimbursed costs received by the Company from Apple Ten were recorded as general and administrative expense by Apple Ten and as reductions to general and administrative expense by the Company, the termination of the advisory agreement had no financial impact on the combined company after the effective time of the Apple Ten merger. General and administrative expense also increased for both the third quarter and first nine months of 2017 as compared to the prior year due to an increased accrual as of September 30, 2017 for the Company’s executive incentive plan related to better projected performance under the plan. In comparison, the accrual for potential executive bonus payments was reduced during the third quarter of 2016 by approximately $0.8 million, due to lower than previously anticipated 2016 performance, resulting in a decrease in executive compensation expense for the period. The increases in the third quarter and the first nine months of 2017 over the same periods of 2016 were $1.7 million and $1.0 million, respectively.
Depreciation and TownePlace Suites hotels that the Company identified for potential sale during the first quarter of 2017. For each of the threeAmortization Expense
Depreciation and nine months ended September 30, 2016, loss on impairment of depreciable real estate assets was approximately $5.5 million, and related to the Chesapeake, Virginia Marriott hotel that the Company identified for potential sale during the period.
Interest and Other Expense, net
Interest and other expense, net for the three months ended September 30, 20172023 and 20162022 was $12.0$17.5 million and $10.2$14.9 million, respectively,respectively. For the nine months ended September 30, 2023 and 2022, interest and other expense, net was $51.0 million and $44.8 million, respectively. Interest and other expense, net for the nine months ended September 30, 2023 and 2022, is net of approximately $0.1$0.7 million and $0.2$0.5 million, respectively, of interest capitalized associated with renovation projects.
Interest expense related to the Company’s debt instruments for the three and nine months ended September 30, 2023 increased compared to the same periods of 2022 as a result of higher average borrowings associated with variable-rate debt and higher average interest rates on the Company's variable-rate debt due to the high inflationary environment within the current economy. The Company anticipates interest expense for the remainder of 2023 will be greater than the interest expense for the same period of 2022 due to higher average borrowings associated with variable-rate debt and higher market interest rates.
Income Tax Expense
Income tax expense for the three months ended September 30, 2023 and 2022 was $0.3 million and $1.3 million, respectively. For the nine months ended September 30, 20172023 and 2016, interest and other2022, income tax expense net was $35.6$0.9 million and $28.5$1.7 million, respectively, and is net of approximately $0.7 million and $1.2 million of interest capitalized associated with renovation projects, respectively. The increase in interest expense wasdecrease is primarily due to an increasestate income taxes that were higher than normal in the Company’s average outstanding borrowings during the first nine monthsseveral states in 2022 as a result of 2017 as compared to 2016 which is primarily attributable to (a) mortgage debt assumed in the Apple Ten merger effective September 1, 2016 and (b) borrowings to fund (i) the cash payment portion of the Apple Ten merger, (ii) the repayment of Apple Ten’s outstanding balance on its extinguished credit facility assumed in the Apple Ten merger and (iii) the acquisition of four hotels (one in July 2016, one in February 2017 and two in September 2017); which increases were partially offset by the sale of two hotels (one in December 2016 and one in April 2017). The impact of higher debt balances and the increasing cost of variable rate debt was partially offset by a reduction in the average interest rate incurredtemporary limitations placed on the Company’s total outstanding debt, resulting from the repaymentapplication of maturing fixed-rate mortgage debt with lower rate borrowings primarily from its $150 million term loan facility and new mortgage debt originations.
Non-GAAP Financial Measures
The Company considers the following non-GAAP financial measures useful to investors as key supplemental measures of its operating performance: Funds from Operations (“FFO”), Modified FFOFunds from Operations (“MFFO”), Earnings beforeBefore Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Earnings Before Interest, Income Taxes, Depreciation and Amortization for Real Estate (“EBITDAre”), Adjusted EBITDAre (“Adjusted EBITDAre”) and Adjusted EBITDA (“Adjusted EBITDA”).Hotel EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income (loss), cash flow from operations or any other operating GAAP measure. FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA are not necessarily indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. Although FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as calculated by the Company, may not be comparable to FFO, MFFO, EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA, as reported by other companies that do not define such terms exactly as the Company defines such terms, the Company believes these supplemental measures are useful to investors when comparing the Company’s results between periods and with other REITs.
23
FFO and MFFO
The Company calculates and presents FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”), which defines FFO as net income (loss) (computed in accordance with generally accepted accounting principles (“GAAP”))GAAP), excluding gains orand losses from salesthe sale of certain real estate assets (including gains and losses from change in control), extraordinary items as defined by GAAP, and the cumulative effect of changes in accounting principles, plus real estate related depreciation, amortization and impairments, and adjustments for unconsolidated partnerships and joint ventures.affiliates. Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, most real estate industry investors consider FFO to be helpful in evaluating a real estate company’s operations. The Company further believes that by excluding the effects of these items, FFO is useful to investors in comparing its operating performance between periods and between REITs that report FFO using the NAREITNareit definition. FFO as presented by the Company is applicable only to its common shareholders, but does not represent an amount that accrues directly to common shareholders.
The Company calculates MFFO by further adjustsadjusting FFO for certain additional items that are not in NAREIT’s definition of FFO, including: (i) the exclusion of transactionamortization of finance ground lease assets, amortization of favorable and litigation costs (reimbursements) as these costs do not represent ongoing operationsunfavorable operating leases, net and (ii) the exclusion of non-cash straight-line operating ground lease expense, as this expense doesthese expenses do not reflect the underlying performance of the related hotels. The Company presents MFFO when evaluating its performance because it believes that it provides further useful supplemental information to investors regarding its ongoing operating performance.
The following table reconciles the Company’s GAAP net income to FFO and MFFO for the three and nine months ended September 30, 20172023 and 20162022 (in thousands).
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income | $ | 62,824 | $ | 13,694 | $ | 184,795 | $ | 103,098 | ||||||||
| Depreciation of real estate owned | 43,880 | 37,114 | 131,081 | 103,962 | ||||||||||||
| (Gain) loss on sale of real estate | 157 | - | (15,983 | ) | - | |||||||||||
| Loss on impairment of depreciable real estate assets | - | 5,471 | 7,875 | 5,471 | ||||||||||||
| Amortization of favorable and unfavorable leases, net | 165 | 132 | 498 | 513 | ||||||||||||
| Funds from operations | 107,026 | 56,411 | 308,266 | 213,044 | ||||||||||||
| Transaction and litigation costs (reimbursements) | - | 36,452 | (2,586 | ) | 37,861 | |||||||||||
| Non-cash straight-line ground lease expense | 917 | 843 | 2,794 | 2,479 | ||||||||||||
| Modified funds from operations | $ | 107,943 | $ | 93,706 | $ | 308,474 | $ | 253,384 | ||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income |
| $ | 58,512 |
|
| $ | 59,146 |
|
| $ | 156,724 |
|
| $ | 142,493 |
|
Depreciation of real estate owned |
|
| 44,734 |
|
|
| 44,372 |
|
|
| 135,105 |
|
|
| 133,489 |
|
Gain on sale of real estate |
|
| - |
|
|
| (1,785 | ) |
|
| - |
|
|
| (1,785 | ) |
Funds from operations |
|
| 103,246 |
|
|
| 101,733 |
|
|
| 291,829 |
|
|
| 274,197 |
|
Amortization of finance ground lease assets |
|
| 759 |
|
|
| 759 |
|
|
| 2,278 |
|
|
| 2,278 |
|
Amortization of favorable and unfavorable operating |
|
| 99 |
|
|
| 97 |
|
|
| 281 |
|
|
| 299 |
|
Non-cash straight-line operating ground lease expense |
|
| 35 |
|
|
| 38 |
|
|
| 109 |
|
|
| 116 |
|
Modified funds from operations |
| $ | 104,139 |
|
| $ | 102,627 |
|
| $ | 294,497 |
|
| $ | 276,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA
EBITDA is a commonly used measure of performance in many industries and is defined as net income (loss) excluding interest, income taxes, and depreciation and amortization. The Company believes EBITDA is useful to investors because it helps the Company and its investors evaluate the ongoing operating performance of the Company by removing the impact of its capital structure (primarily interest expense) and its asset base (primarily depreciation and amortization). In addition, certain covenants included in the agreements governing the Company’s indebtedness use EBITDA, as defined in the specific credit agreement, as a measure of financial compliance.
In addition to EBITDA, the Company considers the exclusion of
The Company also considers the exclusion of non-cash straight-line operating ground lease expense from EBITDAre useful, as this expense does not reflect the underlying performance of the related hotels (Adjusted EBITDAre).
The Company further excludes actual corporate-level general and administrative expense for the Company as well as Adjusted EBITDAre from its non-hotel property from Adjusted EBITDAre (Adjusted Hotel EBITDA) to isolate property-level operational performance over which the Company’s hotel operators have direct control. The Company believes Adjusted Hotel EBITDA provides useful supplemental information to investors regarding operating performance and it is used by management to measure the performance of the Company’s hotels and effectiveness of the operators of the hotels.
24
The following table reconciles the Company’s GAAP net income to EBITDA, EBITDAre, Adjusted EBITDAre and Adjusted Hotel EBITDA for the three and nine months ended September 30, 20172023 and 20162022 (in thousands).
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income |
| $ | 58,512 |
|
| $ | 59,146 |
|
| $ | 156,724 |
|
| $ | 142,493 |
|
Depreciation and amortization |
|
| 45,498 |
|
|
| 45,135 |
|
|
| 137,398 |
|
|
| 135,781 |
|
Amortization of favorable and unfavorable operating |
|
| 99 |
|
|
| 97 |
|
|
| 281 |
|
|
| 299 |
|
Interest and other expense, net |
|
| 17,470 |
|
|
| 14,933 |
|
|
| 50,973 |
|
|
| 44,785 |
|
Income tax expense |
|
| 313 |
|
|
| 1,331 |
|
|
| 874 |
|
|
| 1,712 |
|
EBITDA |
|
| 121,892 |
|
|
| 120,642 |
|
|
| 346,250 |
|
|
| 325,070 |
|
Gain on sale of real estate |
|
| - |
|
|
| (1,785 | ) |
|
| - |
|
|
| (1,785 | ) |
EBITDAre |
|
| 121,892 |
|
|
| 118,857 |
|
|
| 346,250 |
|
|
| 323,285 |
|
Non-cash straight-line operating ground lease expense |
|
| 35 |
|
|
| 38 |
|
|
| 109 |
|
|
| 116 |
|
Adjusted EBITDAre |
|
| 121,927 |
|
|
| 118,895 |
|
|
| 346,359 |
|
|
| 323,401 |
|
General and administrative expense |
|
| 11,079 |
|
|
| 10,271 |
|
|
| 34,640 |
|
|
| 30,216 |
|
Adjusted EBITDAre from non-hotel property (1) |
|
| (845 | ) |
|
| - |
|
|
| (845 | ) |
|
| - |
|
Adjusted Hotel EBITDA |
| $ | 132,161 |
|
| $ | 129,166 |
|
| $ | 380,154 |
|
| $ | 353,617 |
|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income | $ | 62,824 | $ | 13,694 | $ | 184,795 | $ | 103,098 | ||||||||
| Depreciation | 44,110 | 37,343 | 131,770 | 104,651 | ||||||||||||
| Amortization of favorable and unfavorable leases, net | 165 | 132 | 498 | 513 | ||||||||||||
| Interest and other expense, net | 12,024 | 10,156 | 35,590 | 28,519 | ||||||||||||
| Income tax expense (benefit) | 203 | (7 | ) | 712 | 616 | |||||||||||
| EBITDA | 119,326 | 61,318 | 353,365 | 237,397 | ||||||||||||
| Transaction and litigation costs (reimbursements) | - | 36,452 | (2,586 | ) | 37,861 | |||||||||||
| (Gain) loss on sale of real estate | 157 | - | (15,983 | ) | - | |||||||||||
| Loss on impairment of depreciable real estate assets | - | 5,471 | 7,875 | 5,471 | ||||||||||||
| Non-cash straight-line ground lease expense | 917 | 843 | 2,794 | 2,479 | ||||||||||||
| Adjusted EBITDA | $ | 120,400 | $ | 104,084 | $ | 345,465 | $ | 283,208 | ||||||||
Hotels Owned
As of September 30, 2017,2023, the Company owned 237220 hotels with an aggregate of 30,18828,929 rooms located in 3337 states. The following tables summarize the number of hotels and rooms by brand and by state:
| Number of Hotels and Guest Rooms by Brand | ||||||||
| Number of | Number of | |||||||
| Brand | Hotels | Rooms | ||||||
| Hilton Garden Inn | 42 | 5,807 | ||||||
| Courtyard | 40 | 5,460 | ||||||
| Hampton | 36 | 4,422 | ||||||
| Homewood Suites | 34 | 3,831 | ||||||
| Residence Inn | 32 | 3,696 | ||||||
| SpringHill Suites | 17 | 2,248 | ||||||
| TownePlace Suites | 12 | 1,196 | ||||||
| Fairfield Inn | 11 | 1,300 | ||||||
| Home2 Suites | 7 | 775 | ||||||
| Marriott | 3 | 932 | ||||||
| Embassy Suites | 2 | 316 | ||||||
| Renaissance | 1 | 205 | ||||||
| Total | 237 | 30,188 | ||||||
| Number of Hotels and Guest Rooms by State | ||||||||
| Number of | Number of | |||||||
| State | Hotels | Rooms | ||||||
| Alabama | 15 | 1,434 | ||||||
| Alaska | 1 | 169 | ||||||
| Arizona | 11 | 1,434 | ||||||
| Arkansas | 4 | 408 | ||||||
| California | 27 | 3,807 | ||||||
| Colorado | 4 | 567 | ||||||
| Florida | 23 | 2,851 | ||||||
| Georgia | 6 | 596 | ||||||
| Idaho | 2 | 416 | ||||||
| Illinois | 8 | 1,420 | ||||||
| Indiana | 4 | 479 | ||||||
| Iowa | 3 | 301 | ||||||
| Kansas | 4 | 422 | ||||||
| Louisiana | 4 | 541 | ||||||
| Maryland | 2 | 233 | ||||||
| Massachusetts | 4 | 466 | ||||||
| Michigan | 1 | 148 | ||||||
| Minnesota | 2 | 244 | ||||||
| Mississippi | 2 | 168 | ||||||
| Missouri | 4 | 544 | ||||||
| Nebraska | 4 | 621 | ||||||
| New Jersey | 5 | 629 | ||||||
| New York | 4 | 550 | ||||||
| North Carolina | 12 | 1,337 | ||||||
| Ohio | 2 | 252 | ||||||
| Oklahoma | 4 | 545 | ||||||
| Pennsylvania | 3 | 391 | ||||||
| South Carolina | 5 | 538 | ||||||
| Tennessee | 12 | 1,356 | ||||||
| Texas | 34 | 4,072 | ||||||
| Utah | 2 | 257 | ||||||
| Virginia | 15 | 2,383 | ||||||
| Washington | 4 | 609 | ||||||
| Total | 237 | 30,188 | ||||||
Number of Hotels and Guest Rooms by Brand |
| |||||||
|
| Number of |
|
| Number of |
| ||
Brand |
| Hotels |
|
| Rooms |
| ||
Hilton Garden Inn |
|
| 40 |
|
|
| 5,593 |
|
Hampton |
|
| 37 |
|
|
| 4,953 |
|
Courtyard |
|
| 34 |
|
|
| 4,807 |
|
Homewood Suites |
|
| 30 |
|
|
| 3,417 |
|
Residence Inn |
|
| 29 |
|
|
| 3,548 |
|
Fairfield |
|
| 10 |
|
|
| 1,213 |
|
Home2 Suites |
|
| 10 |
|
|
| 1,146 |
|
SpringHill Suites |
|
| 9 |
|
|
| 1,245 |
|
TownePlace Suites |
|
| 9 |
|
|
| 931 |
|
AC Hotels |
|
| 3 |
|
|
| 468 |
|
Hyatt Place |
|
| 3 |
|
|
| 411 |
|
Marriott |
|
| 2 |
|
|
| 619 |
|
Embassy Suites |
|
| 2 |
|
|
| 316 |
|
Aloft |
|
| 1 |
|
|
| 157 |
|
Hyatt House |
|
| 1 |
|
|
| 105 |
|
Total |
|
| 220 |
|
|
| 28,929 |
|
25
Number of Hotels and Guest Rooms by State |
| |||||||
|
| Number of |
|
| Number of |
| ||
State |
| Hotels |
|
| Rooms |
| ||
Alabama |
|
| 13 |
|
|
| 1,246 |
|
Alaska |
|
| 2 |
|
|
| 304 |
|
Arizona |
|
| 13 |
|
|
| 1,776 |
|
Arkansas |
|
| 2 |
|
|
| 248 |
|
California |
|
| 26 |
|
|
| 3,721 |
|
Colorado |
|
| 4 |
|
|
| 567 |
|
Florida |
|
| 22 |
|
|
| 2,844 |
|
Georgia |
|
| 5 |
|
|
| 585 |
|
Idaho |
|
| 1 |
|
|
| 186 |
|
Illinois |
|
| 7 |
|
|
| 1,255 |
|
Indiana |
|
| 4 |
|
|
| 479 |
|
Iowa |
|
| 3 |
|
|
| 301 |
|
Kansas |
|
| 3 |
|
|
| 320 |
|
Kentucky |
|
| 1 |
|
|
| 156 |
|
Louisiana |
|
| 3 |
|
|
| 422 |
|
Maine |
|
| 3 |
|
|
| 514 |
|
Maryland |
|
| 2 |
|
|
| 233 |
|
Massachusetts |
|
| 3 |
|
|
| 330 |
|
Michigan |
|
| 1 |
|
|
| 148 |
|
Minnesota |
|
| 3 |
|
|
| 405 |
|
Mississippi |
|
| 2 |
|
|
| 168 |
|
Missouri |
|
| 4 |
|
|
| 544 |
|
Nebraska |
|
| 4 |
|
|
| 621 |
|
New Jersey |
|
| 5 |
|
|
| 629 |
|
New York |
|
| 3 |
|
|
| 346 |
|
North Carolina |
|
| 8 |
|
|
| 881 |
|
Ohio |
|
| 3 |
|
|
| 406 |
|
Oklahoma |
|
| 4 |
|
|
| 545 |
|
Oregon |
|
| 1 |
|
|
| 243 |
|
Pennsylvania |
|
| 4 |
|
|
| 525 |
|
South Carolina |
|
| 5 |
|
|
| 590 |
|
Tennessee |
|
| 11 |
|
|
| 1,337 |
|
Texas |
|
| 27 |
|
|
| 3,328 |
|
Utah |
|
| 3 |
|
|
| 393 |
|
Virginia |
|
| 11 |
|
|
| 1,667 |
|
Washington |
|
| 3 |
|
|
| 490 |
|
Wisconsin |
|
| 1 |
|
|
| 176 |
|
Total |
|
| 220 |
|
|
| 28,929 |
|
|
|
|
|
|
|
| ||
26
The following table summarizes the location, brand, manager, date acquired or completed and number of rooms for each of the 237220 hotels and the non-hotel property that the Company owned as of September 30, 2017.
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| |
Anchorage |
| AK |
| Embassy Suites |
| InnVentures |
| 4/30/2010 |
|
| 169 |
|
|
Anchorage |
| AK |
| Home2 Suites |
| InnVentures |
| 12/1/2017 |
|
| 135 |
|
|
Auburn |
| AL |
| Hilton Garden Inn |
| LBA |
| 3/1/2014 |
|
| 101 |
|
|
Birmingham |
| AL |
| Courtyard |
| LBA |
| 3/1/2014 |
|
| 84 |
|
|
Birmingham |
| AL |
| Hilton Garden Inn |
| LBA |
| 9/12/2017 |
|
| 104 |
|
|
Birmingham |
| AL |
| Home2 Suites |
| LBA |
| 9/12/2017 |
|
| 106 |
|
|
Birmingham |
| AL |
| Homewood Suites |
| McKibbon |
| 3/1/2014 |
|
| 95 |
|
|
Dothan |
| AL |
| Hilton Garden Inn |
| LBA |
| 6/1/2009 |
|
| 104 |
|
|
Dothan |
| AL |
| Residence Inn |
| LBA |
| 3/1/2014 |
|
| 84 |
|
|
Huntsville |
| AL |
| Hampton |
| LBA |
| 9/1/2016 |
|
| 98 |
|
|
Huntsville |
| AL |
| Hilton Garden Inn |
| LBA |
| 3/1/2014 |
|
| 101 |
|
|
Huntsville |
| AL |
| Home2 Suites |
| LBA |
| 9/1/2016 |
|
| 77 |
|
|
Huntsville |
| AL |
| Homewood Suites |
| LBA |
| 3/1/2014 |
|
| 107 |
|
|
Mobile |
| AL |
| Hampton |
| McKibbon |
| 9/1/2016 |
|
| 101 |
| (2) |
Prattville |
| AL |
| Courtyard |
| LBA |
| 3/1/2014 |
|
| 84 |
|
|
Rogers |
| AR |
| Hampton |
| Raymond |
| 8/31/2010 |
|
| 122 |
|
|
Rogers |
| AR |
| Homewood Suites |
| Raymond |
| 4/30/2010 |
|
| 126 |
|
|
Chandler |
| AZ |
| Courtyard |
| North Central |
| 11/2/2010 |
|
| 150 |
|
|
Chandler |
| AZ |
| Fairfield |
| North Central |
| 11/2/2010 |
|
| 110 |
|
|
Phoenix |
| AZ |
| Courtyard |
| North Central |
| 11/2/2010 |
|
| 164 |
|
|
Phoenix |
| AZ |
| Hampton |
| North Central |
| 9/1/2016 |
|
| 125 |
| (2) |
Phoenix |
| AZ |
| Hampton |
| North Central |
| 5/2/2018 |
|
| 210 |
|
|
Phoenix |
| AZ |
| Homewood Suites |
| North Central |
| 9/1/2016 |
|
| 134 |
| (2) |
Phoenix |
| AZ |
| Residence Inn |
| North Central |
| 11/2/2010 |
|
| 129 |
|
|
Scottsdale |
| AZ |
| Hilton Garden Inn |
| North Central |
| 9/1/2016 |
|
| 122 |
|
|
Tempe |
| AZ |
| Hyatt House |
| Crestline |
| 8/13/2020 |
|
| 105 |
| (2) |
Tempe |
| AZ |
| Hyatt Place |
| Crestline |
| 8/13/2020 |
|
| 154 |
| (2) |
Tucson |
| AZ |
| Hilton Garden Inn |
| Western |
| 7/31/2008 |
|
| 125 |
|
|
Tucson |
| AZ |
| Residence Inn |
| Western |
| 3/1/2014 |
|
| 124 |
|
|
Tucson |
| AZ |
| TownePlace Suites |
| Western |
| 10/6/2011 |
|
| 124 |
|
|
Agoura Hills |
| CA |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 125 |
|
|
Burbank |
| CA |
| Courtyard |
| Huntington |
| 8/11/2015 |
|
| 190 |
| (1) |
Burbank |
| CA |
| Residence Inn |
| Marriott |
| 3/1/2014 |
|
| 166 |
|
|
Burbank |
| CA |
| SpringHill Suites |
| Marriott |
| 7/13/2015 |
|
| 170 |
| (1) |
Clovis |
| CA |
| Hampton |
| Dimension |
| 7/31/2009 |
|
| 86 |
|
|
Clovis |
| CA |
| Homewood Suites |
| Dimension |
| 2/2/2010 |
|
| 83 |
|
|
Cypress |
| CA |
| Courtyard |
| Dimension |
| 3/1/2014 |
|
| 180 |
|
|
Cypress |
| CA |
| Hampton |
| Dimension |
| 6/29/2015 |
|
| 110 |
|
|
Oceanside |
| CA |
| Courtyard |
| Marriott |
| 9/1/2016 |
|
| 142 |
| (1) |
Oceanside |
| CA |
| Residence Inn |
| Marriott |
| 3/1/2014 |
|
| 125 |
|
|
Rancho Bernardo/San Diego |
| CA |
| Courtyard |
| InnVentures |
| 3/1/2014 |
|
| 210 |
|
|
Sacramento |
| CA |
| Hilton Garden Inn |
| Dimension |
| 3/1/2014 |
|
| 153 |
|
|
San Bernardino |
| CA |
| Residence Inn |
| InnVentures |
| 2/16/2011 |
|
| 95 |
|
|
San Diego |
| CA |
| Courtyard |
| Huntington |
| 9/1/2015 |
|
| 245 |
| (1) |
San Diego |
| CA |
| Hampton |
| Dimension |
| 3/1/2014 |
|
| 177 |
| (1) |
San Diego |
| CA |
| Hilton Garden Inn |
| InnVentures |
| 3/1/2014 |
|
| 200 |
|
|
San Diego |
| CA |
| Residence Inn |
| Dimension |
| 3/1/2014 |
|
| 121 |
|
|
San Jose |
| CA |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 140 |
| (1) |
27
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| |
San Juan Capistrano |
| CA |
| Residence Inn |
| Marriott |
| 9/1/2016 |
|
| 130 |
| (2) |
Santa Ana |
| CA |
| Courtyard |
| Dimension |
| 5/23/2011 |
|
| 155 |
| (1) |
Santa Clarita |
| CA |
| Courtyard |
| Dimension |
| 9/24/2008 |
|
| 140 |
|
|
Santa Clarita |
| CA |
| Fairfield |
| Dimension |
| 10/29/2008 |
|
| 66 |
|
|
Santa Clarita |
| CA |
| Hampton |
| Dimension |
| 10/29/2008 |
|
| 128 |
|
|
Santa Clarita |
| CA |
| Residence Inn |
| Dimension |
| 10/29/2008 |
|
| 90 |
|
|
Tustin |
| CA |
| Fairfield |
| Marriott |
| 9/1/2016 |
|
| 145 |
|
|
Tustin |
| CA |
| Residence Inn |
| Marriott |
| 9/1/2016 |
|
| 149 |
|
|
Colorado Springs |
| CO |
| Hampton |
| Chartwell |
| 9/1/2016 |
|
| 101 |
|
|
Denver |
| CO |
| Hilton Garden Inn |
| InnVentures |
| 9/1/2016 |
|
| 221 |
| (1) |
Highlands Ranch |
| CO |
| Hilton Garden Inn |
| Dimension |
| 3/1/2014 |
|
| 128 |
|
|
Highlands Ranch |
| CO |
| Residence Inn |
| Dimension |
| 3/1/2014 |
|
| 117 |
|
|
Boca Raton |
| FL |
| Hilton Garden Inn |
| Dimension |
| 9/1/2016 |
|
| 149 |
|
|
Cape Canaveral |
| FL |
| Hampton |
| LBA |
| 4/30/2020 |
|
| 116 |
|
|
Cape Canaveral |
| FL |
| Homewood Suites |
| LBA |
| 9/1/2016 |
|
| 153 |
|
|
Cape Canaveral |
| FL |
| Home2 Suites |
| LBA |
| 4/30/2020 |
|
| 108 |
|
|
Fort Lauderdale |
| FL |
| Hampton |
| Dimension |
| 6/23/2015 |
|
| 156 |
|
|
Fort Lauderdale |
| FL |
| Residence Inn |
| LBA |
| 9/1/2016 |
|
| 156 |
|
|
Gainesville |
| FL |
| Hilton Garden Inn |
| McKibbon |
| 9/1/2016 |
|
| 104 |
|
|
Gainesville |
| FL |
| Homewood Suites |
| McKibbon |
| 9/1/2016 |
|
| 103 |
|
|
Jacksonville |
| FL |
| Homewood Suites |
| McKibbon |
| 3/1/2014 |
|
| 119 |
|
|
Jacksonville |
| FL |
| Hyatt Place |
| Crestline |
| 12/7/2018 |
|
| 127 |
|
|
Miami |
| FL |
| Courtyard |
| Dimension |
| 3/1/2014 |
|
| 118 |
| (2) |
Miami |
| FL |
| Hampton |
| HHM |
| 4/9/2010 |
|
| 121 |
|
|
Miami |
| FL |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 162 |
|
|
Orlando |
| FL |
| Fairfield |
| Marriott |
| 7/1/2009 |
|
| 200 |
|
|
Orlando |
| FL |
| Home2 Suites |
| LBA |
| 3/19/2019 |
|
| 128 |
|
|
Orlando |
| FL |
| SpringHill Suites |
| Marriott |
| 7/1/2009 |
|
| 200 |
|
|
Panama City |
| FL |
| Hampton |
| LBA |
| 3/12/2009 |
|
| 95 |
|
|
Panama City |
| FL |
| TownePlace Suites |
| LBA |
| 1/19/2010 |
|
| 103 |
|
|
Pensacola |
| FL |
| TownePlace Suites |
| McKibbon |
| 9/1/2016 |
|
| 97 |
|
|
Tallahassee |
| FL |
| Fairfield |
| LBA |
| 9/1/2016 |
|
| 97 |
|
|
Tallahassee |
| FL |
| Hilton Garden Inn |
| LBA |
| 3/1/2014 |
|
| 85 |
| (2) |
Tampa |
| FL |
| Embassy Suites |
| HHM |
| 11/2/2010 |
|
| 147 |
|
|
Atlanta/Downtown |
| GA |
| Hampton |
| McKibbon |
| 2/5/2018 |
|
| 119 |
|
|
Atlanta/Perimeter Dunwoody |
| GA |
| Hampton |
| LBA |
| 6/28/2018 |
|
| 132 |
|
|
Atlanta |
| GA |
| Home2 Suites |
| McKibbon |
| 7/1/2016 |
|
| 128 |
|
|
Macon |
| GA |
| Hilton Garden Inn |
| LBA |
| 3/1/2014 |
|
| 101 |
| (2) |
Savannah |
| GA |
| Hilton Garden Inn |
| Newport |
| 3/1/2014 |
|
| 105 |
| (2) |
Cedar Rapids |
| IA |
| Hampton |
| Aimbridge |
| 9/1/2016 |
|
| 103 |
| (4) |
Cedar Rapids |
| IA |
| Homewood Suites |
| Aimbridge |
| 9/1/2016 |
|
| 95 |
| (4) |
Davenport |
| IA |
| Hampton |
| Aimbridge |
| 9/1/2016 |
|
| 103 |
| (4) |
Boise |
| ID |
| Hampton |
| Raymond |
| 4/30/2010 |
|
| 186 |
| (1) |
Des Plaines |
| IL |
| Hilton Garden Inn |
| Raymond |
| 9/1/2016 |
|
| 253 |
|
|
Hoffman Estates |
| IL |
| Hilton Garden Inn |
| HHM |
| 9/1/2016 |
|
| 184 |
|
|
Mettawa |
| IL |
| Hilton Garden Inn |
| HHM |
| 11/2/2010 |
|
| 170 |
|
|
Mettawa |
| IL |
| Residence Inn |
| HHM |
| 11/2/2010 |
|
| 130 |
|
|
Rosemont |
| IL |
| Hampton |
| Raymond |
| 9/1/2016 |
|
| 158 |
|
|
Skokie |
| IL |
| Hampton |
| Raymond |
| 9/1/2016 |
|
| 225 |
|
|
Warrenville |
| IL |
| Hilton Garden Inn |
| HHM |
| 11/2/2010 |
|
| 135 |
|
|
Indianapolis |
| IN |
| SpringHill Suites |
| HHM |
| 11/2/2010 |
|
| 130 |
|
|
28
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| |
Merrillville |
| IN |
| Hilton Garden Inn |
| HHM |
| 9/1/2016 |
|
| 124 |
|
|
Mishawaka |
| IN |
| Residence Inn |
| HHM |
| 11/2/2010 |
|
| 106 |
|
|
South Bend |
| IN |
| Fairfield |
| HHM |
| 9/1/2016 |
|
| 119 |
|
|
Overland Park |
| KS |
| Fairfield |
| Raymond |
| 3/1/2014 |
|
| 110 |
|
|
Overland Park |
| KS |
| Residence Inn |
| Raymond |
| 3/1/2014 |
|
| 120 |
|
|
Wichita |
| KS |
| Courtyard |
| Aimbridge |
| 3/1/2014 |
|
| 90 |
| (4) |
Louisville |
| KY |
| AC Hotels |
| Concord |
| 10/25/2022 |
|
| 156 |
|
|
Lafayette |
| LA |
| Hilton Garden Inn |
| LBA |
| 7/30/2010 |
|
| 153 |
| (2) |
Lafayette |
| LA |
| SpringHill Suites |
| LBA |
| 6/23/2011 |
|
| 103 |
|
|
New Orleans |
| LA |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 166 |
| (1) |
Marlborough |
| MA |
| Residence Inn |
| Crestline |
| 3/1/2014 |
|
| 112 |
|
|
Westford |
| MA |
| Hampton |
| Crestline |
| 3/1/2014 |
|
| 110 |
|
|
Westford |
| MA |
| Residence Inn |
| Crestline |
| 3/1/2014 |
|
| 108 |
| (1) |
Annapolis |
| MD |
| Hilton Garden Inn |
| Crestline |
| 3/1/2014 |
|
| 126 |
|
|
Silver Spring |
| MD |
| Hilton Garden Inn |
| Crestline |
| 7/30/2010 |
|
| 107 |
|
|
Portland |
| ME |
| AC Hotels |
| Crestline |
| 8/20/2021 |
|
| 178 |
|
|
Portland |
| ME |
| Aloft |
| Crestline |
| 9/10/2021 |
|
| 157 |
|
|
Portland |
| ME |
| Residence Inn |
| Crestline |
| 10/13/2017 |
|
| 179 |
| (1) |
Novi |
| MI |
| Hilton Garden Inn |
| HHM |
| 11/2/2010 |
|
| 148 |
|
|
Maple Grove |
| MN |
| Hilton Garden Inn |
| North Central |
| 9/1/2016 |
|
| 121 |
|
|
Rochester |
| MN |
| Hampton |
| Raymond |
| 8/3/2009 |
|
| 124 |
|
|
St. Paul |
| MN |
| Hampton |
| Raymond |
| 3/4/2019 |
|
| 160 |
|
|
Kansas City |
| MO |
| Hampton |
| Raymond |
| 8/31/2010 |
|
| 122 |
|
|
Kansas City |
| MO |
| Residence Inn |
| Raymond |
| 3/1/2014 |
|
| 106 |
|
|
St. Louis |
| MO |
| Hampton |
| Raymond |
| 8/31/2010 |
|
| 190 |
|
|
St. Louis |
| MO |
| Hampton |
| Raymond |
| 4/30/2010 |
|
| 126 |
|
|
Hattiesburg |
| MS |
| Courtyard |
| LBA |
| 3/1/2014 |
|
| 84 |
|
|
Hattiesburg |
| MS |
| Residence Inn |
| LBA |
| 12/11/2008 |
|
| 84 |
|
|
Carolina Beach |
| NC |
| Courtyard |
| Crestline |
| 3/1/2014 |
|
| 144 |
|
|
Charlotte |
| NC |
| Fairfield |
| Newport |
| 9/1/2016 |
|
| 94 |
|
|
Durham |
| NC |
| Homewood Suites |
| McKibbon |
| 12/4/2008 |
|
| 122 |
|
|
Fayetteville |
| NC |
| Home2 Suites |
| LBA |
| 2/3/2011 |
|
| 118 |
|
|
Greensboro |
| NC |
| SpringHill Suites |
| Newport |
| 3/1/2014 |
|
| 82 |
|
|
Jacksonville |
| NC |
| Home2 Suites |
| LBA |
| 9/1/2016 |
|
| 105 |
|
|
Wilmington |
| NC |
| Fairfield |
| Crestline |
| 3/1/2014 |
|
| 122 |
|
|
Winston-Salem |
| NC |
| Hampton |
| McKibbon |
| 9/1/2016 |
|
| 94 |
|
|
Omaha |
| NE |
| Courtyard |
| Marriott |
| 3/1/2014 |
|
| 181 |
|
|
Omaha |
| NE |
| Hampton |
| HHM |
| 9/1/2016 |
|
| 139 |
|
|
Omaha |
| NE |
| Hilton Garden Inn |
| HHM |
| 9/1/2016 |
|
| 178 |
| (1) |
Omaha |
| NE |
| Homewood Suites |
| HHM |
| 9/1/2016 |
|
| 123 |
|
|
Cranford |
| NJ |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 108 |
|
|
Mahwah |
| NJ |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 110 |
|
|
Mount Laurel |
| NJ |
| Homewood Suites |
| Newport |
| 1/11/2011 |
|
| 118 |
|
|
Somerset |
| NJ |
| Courtyard |
| Newport |
| 3/1/2014 |
|
| 162 |
| (2) |
West Orange |
| NJ |
| Courtyard |
| Newport |
| 1/11/2011 |
|
| 131 |
|
|
Islip/Ronkonkoma |
| NY |
| Hilton Garden Inn |
| Crestline |
| 3/1/2014 |
|
| 166 |
|
|
New York |
| NY |
| (non-hotel) |
| N/A |
| 3/1/2014 |
|
| - |
| (2)(3) |
Syracuse |
| NY |
| Courtyard |
| Crestline |
| 10/16/2015 |
|
| 102 |
|
|
Syracuse |
| NY |
| Residence Inn |
| Crestline |
| 10/16/2015 |
|
| 78 |
|
|
Cleveland |
| OH |
| Courtyard |
| Concord |
| 6/30/2023 |
|
| 154 |
|
|
Mason |
| OH |
| Hilton Garden Inn |
| Raymond |
| 9/1/2016 |
|
| 110 |
|
|
29
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| |
Twinsburg |
| OH |
| Hilton Garden Inn |
| Aimbridge |
| 10/7/2008 |
|
| 142 |
| (5) |
Oklahoma City |
| OK |
| Hampton |
| Raymond |
| 5/28/2010 |
|
| 200 |
|
|
Oklahoma City |
| OK |
| Hilton Garden Inn |
| Raymond |
| 9/1/2016 |
|
| 155 |
|
|
Oklahoma City |
| OK |
| Homewood Suites |
| Raymond |
| 9/1/2016 |
|
| 100 |
|
|
Oklahoma City (West) |
| OK |
| Homewood Suites |
| Chartwell |
| 9/1/2016 |
|
| 90 |
|
|
Portland |
| OR |
| Hampton |
| Raymond |
| 11/17/2021 |
|
| 243 |
|
|
Collegeville/Philadelphia |
| PA |
| Courtyard |
| Newport |
| 11/15/2010 |
|
| 132 |
|
|
Malvern/Philadelphia |
| PA |
| Courtyard |
| Newport |
| 11/30/2010 |
|
| 127 |
|
|
Pittsburgh |
| PA |
| AC Hotels |
| Concord |
| 10/25/2022 |
|
| 134 |
|
|
Pittsburgh |
| PA |
| Hampton |
| Newport |
| 12/31/2008 |
|
| 132 |
|
|
Charleston |
| SC |
| Home2 Suites |
| LBA |
| 9/1/2016 |
|
| 122 |
|
|
Columbia |
| SC |
| Hilton Garden Inn |
| Newport |
| 3/1/2014 |
|
| 143 |
|
|
Columbia |
| SC |
| TownePlace Suites |
| Newport |
| 9/1/2016 |
|
| 91 |
|
|
Greenville |
| SC |
| Hyatt Place |
| Crestline |
| 9/1/2021 |
|
| 130 |
|
|
Hilton Head |
| SC |
| Hilton Garden Inn |
| McKibbon |
| 3/1/2014 |
|
| 104 |
|
|
Chattanooga |
| TN |
| Homewood Suites |
| LBA |
| 3/1/2014 |
|
| 76 |
|
|
Franklin |
| TN |
| Courtyard |
| Chartwell |
| 9/1/2016 |
|
| 126 |
|
|
Franklin |
| TN |
| Residence Inn |
| Chartwell |
| 9/1/2016 |
|
| 124 |
|
|
Knoxville |
| TN |
| Homewood Suites |
| McKibbon |
| 9/1/2016 |
|
| 103 |
|
|
Knoxville |
| TN |
| SpringHill Suites |
| McKibbon |
| 9/1/2016 |
|
| 103 |
|
|
Knoxville |
| TN |
| TownePlace Suites |
| McKibbon |
| 9/1/2016 |
|
| 97 |
|
|
Memphis |
| TN |
| Hampton |
| Crestline |
| 2/5/2018 |
|
| 144 |
|
|
Memphis |
| TN |
| Hilton Garden Inn |
| Crestline |
| 10/28/2021 |
|
| 150 |
|
|
Nashville |
| TN |
| Hilton Garden Inn |
| Dimension |
| 9/30/2010 |
|
| 194 |
|
|
Nashville |
| TN |
| Home2 Suites |
| Dimension |
| 5/31/2012 |
|
| 119 |
|
|
Nashville |
| TN |
| TownePlace Suites |
| Chartwell |
| 9/1/2016 |
|
| 101 |
|
|
Addison |
| TX |
| SpringHill Suites |
| Marriott |
| 3/1/2014 |
|
| 159 |
|
|
Arlington |
| TX |
| Hampton |
| Western |
| 12/1/2010 |
|
| 98 |
|
|
Austin |
| TX |
| Courtyard |
| HHM |
| 11/2/2010 |
|
| 145 |
|
|
Austin |
| TX |
| Fairfield |
| HHM |
| 11/2/2010 |
|
| 150 |
|
|
Austin |
| TX |
| Hampton |
| Dimension |
| 4/14/2009 |
|
| 124 |
|
|
Austin |
| TX |
| Hilton Garden Inn |
| HHM |
| 11/2/2010 |
|
| 117 |
|
|
Austin |
| TX |
| Homewood Suites |
| Dimension |
| 4/14/2009 |
|
| 97 |
|
|
Austin/Round Rock |
| TX |
| Hampton |
| Dimension |
| 3/6/2009 |
|
| 94 |
|
|
Austin/Round Rock |
| TX |
| Homewood Suites |
| Dimension |
| 9/1/2016 |
|
| 115 |
|
|
Dallas |
| TX |
| Homewood Suites |
| Western |
| 9/1/2016 |
|
| 130 |
|
|
Denton |
| TX |
| Homewood Suites |
| Chartwell |
| 9/1/2016 |
|
| 107 |
|
|
El Paso |
| TX |
| Homewood Suites |
| Western |
| 3/1/2014 |
|
| 114 |
|
|
Fort Worth |
| TX |
| Courtyard |
| LBA |
| 2/2/2017 |
|
| 124 |
|
|
Fort Worth |
| TX |
| Hilton Garden Inn |
| Raymond |
| 11/17/2021 |
|
| 157 |
|
|
Fort Worth |
| TX |
| Homewood Suites |
| Raymond |
| 11/17/2021 |
|
| 112 |
|
|
Fort Worth |
| TX |
| TownePlace Suites |
| Western |
| 7/19/2010 |
|
| 140 |
|
|
Frisco |
| TX |
| Hilton Garden Inn |
| Western |
| 12/31/2008 |
|
| 102 |
|
|
Grapevine |
| TX |
| Hilton Garden Inn |
| Western |
| 9/24/2010 |
|
| 110 |
|
|
Houston |
| TX |
| Courtyard |
| LBA |
| 9/1/2016 |
|
| 124 |
|
|
Houston |
| TX |
| Marriott |
| Western |
| 1/8/2010 |
|
| 206 |
|
|
Houston |
| TX |
| Residence Inn |
| Western |
| 3/1/2014 |
|
| 129 |
|
|
Houston |
| TX |
| Residence Inn |
| Western |
| 9/1/2016 |
|
| 120 |
|
|
Lewisville |
| TX |
| Hilton Garden Inn |
| Aimbridge |
| 10/16/2008 |
|
| 165 |
| (6) |
San Antonio |
| TX |
| TownePlace Suites |
| Western |
| 3/1/2014 |
|
| 106 |
|
|
Shenandoah |
| TX |
| Courtyard |
| LBA |
| 9/1/2016 |
|
| 124 |
|
|
30
City |
| State |
| Brand |
| Manager |
| Date |
| Rooms |
|
| |
Stafford |
| TX |
| Homewood Suites |
| Western |
| 3/1/2014 |
|
| 78 |
|
|
Texarkana |
| TX |
| Hampton |
| Aimbridge |
| 1/31/2011 |
|
| 81 |
| (6) |
Provo |
| UT |
| Residence Inn |
| Dimension |
| 3/1/2014 |
|
| 114 |
|
|
Salt Lake City |
| UT |
| Residence Inn |
| Huntington |
| 10/20/2017 |
|
| 136 |
|
|
Salt Lake City |
| UT |
| SpringHill Suites |
| HHM |
| 11/2/2010 |
|
| 143 |
|
|
Alexandria |
| VA |
| Courtyard |
| Marriott |
| 3/1/2014 |
|
| 178 |
|
|
Alexandria |
| VA |
| SpringHill Suites |
| Marriott |
| 3/28/2011 |
|
| 155 |
|
|
Charlottesville |
| VA |
| Courtyard |
| Crestline |
| 3/1/2014 |
|
| 139 |
|
|
Manassas |
| VA |
| Residence Inn |
| Crestline |
| 2/16/2011 |
|
| 107 |
|
|
Richmond |
| VA |
| Courtyard |
| White Lodging |
| 12/8/2014 |
|
| 135 |
| (1) |
Richmond |
| VA |
| Marriott |
| White Lodging |
| 3/1/2014 |
|
| 413 |
| (2) |
Richmond |
| VA |
| Residence Inn |
| White Lodging |
| 12/8/2014 |
|
| 75 |
| (1) |
Suffolk |
| VA |
| Courtyard |
| Crestline |
| 3/1/2014 |
|
| 92 |
|
|
Suffolk |
| VA |
| TownePlace Suites |
| Crestline |
| 3/1/2014 |
|
| 72 |
|
|
Virginia Beach |
| VA |
| Courtyard |
| Crestline |
| 3/1/2014 |
|
| 141 |
|
|
Virginia Beach |
| VA |
| Courtyard |
| Crestline |
| 3/1/2014 |
|
| 160 |
|
|
Kirkland |
| WA |
| Courtyard |
| InnVentures |
| 3/1/2014 |
|
| 150 |
|
|
Seattle |
| WA |
| Residence Inn |
| InnVentures |
| 3/1/2014 |
|
| 234 |
|
|
Tukwila |
| WA |
| Homewood Suites |
| Dimension |
| 3/1/2014 |
|
| 106 |
|
|
Madison |
| WI |
| Hilton Garden Inn |
| Raymond |
| 2/18/2021 |
|
| 176 |
|
|
Total |
|
|
|
|
|
|
|
|
|
| 28,929 |
|
|
Related Parties
The Company has engaged in, and is expected to continue to engage in, transactions with related parties. These transactions cannot be construed to be at arm’s length, and the results of the Company’s operations may be different if these transactions were conducted with non-related parties. See Note 76 titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information concerning the Company’s related party transactions.
Liquidity and Capital Resources
Capital Resources
The Company’s principal short term sources of liquidity are the operating cash flowflows generated from the Company’s properties and availability under its $540 million unsecured revolving credit facility,Revolving Credit Facility. Over the long term, the Company may receive proceeds from the strategic dispositionadditional secured and unsecured debt financing, dispositions of its hotel properties and proceeds from potential offerings of the Company’s common shares.
As of September 30, 2017,2023, the Company’s revolvingCompany had $1.4 billion of total outstanding debt consisting of $285.2 million of mortgage debt and $1.1 billion outstanding under its unsecured credit facilityfacilities, excluding unamortized debt issuance costs and fair value
31
adjustments. As of September 30, 2023, the Company had an outstanding principal balanceavailable corporate cash on hand of approximately $216.7$35.4 million, with an annual variable interest rateand unused borrowing capacity under its Revolving Credit Facility of approximately 2.78%.
The credit agreementagreements governing the revolvingunsecured credit facility containsfacilities contain mandatory prepayment requirements, customary affirmative covenants,and negative covenants and events of default. The credit agreement requiresagreements require that the Company comply with various covenants, which include, among others, a minimum tangible net worth, maximum debt limits, minimum interest and fixed charge coverage ratios, limits on dividend payments and share repurchases and restrictions on certain investments. The Company was in compliance with the applicable covenants at September 30, 2017.
See Note 54 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for additional information relateda description of the Company’s debt agreements as of September 30, 2023.
The Company has a universal shelf registration statement on Form S-3 (No. 333-262915) that was automatically effective upon filing on February 23, 2022. The Company may offer an indeterminate number or amount, as the case may be, of (1) common shares, no par value per share; (2) preferred shares, no par value per share; (3) depository shares representing the Company’s preferred shares; (4) warrants exercisable for the Company’s common shares, preferred shares or depository shares representing preferred shares; (5) rights to purchase common shares; and (6) unsecured senior or subordinate debt securities, all of which may be issued from time to time on a delayed or continuous basis pursuant to Rule 415 under the $85Securities Act. Future offerings will depend on a variety of factors to be determined by the Company, including market conditions, the trading price of the Company’s common shares and opportunities for uses of any proceeds.
On August 12, 2020, the Company entered into an equity distribution agreement pursuant to which the Company may sell, from time to time, up to an aggregate of $300 million term loan.
Capital Uses
The Company anticipates that cash flow from operations, availability under its revolving credit facility,Revolving Credit Facility, additional borrowings, and proceeds from hotel dispositions and equity offerings will be adequate to meet its anticipated short-term and long-term liquidity requirements, including required distributions to shareholders, share repurchases, capital improvements, debt service, hotel acquisitions, hotel renovations, required distributions to shareholders (thelease commitments, and cash management activities.
Distributions
The Company is not required to make distributions at its current rate for REIT purposes) and share repurchases.
The Company’s current annual distribution rate, payable monthly, is $1.20 per common share. AsCompany, as it has done historically due to seasonality, the Company may use its revolving credit facilityRevolving Credit Facility to maintain the consistency of the monthly distribution rate,distributions, taking into consideration any acquisitions, dispositions, capital improvements and economic cycles. AnyWhile management currently expects monthly cash distributions to continue at $0.08 per common share, any distribution will be subject to approval of the Company’s Board of Directors and there can be no assurance of the classification, timing or duration of distributions at the current annualany particular distribution rate. The Board of Directors monitors the Company’s distribution rate relative to the performance of theits hotels on an ongoing basis and may make adjustments to the distribution rate as determined to be prudent in relation to other cash requirements of
32
the Company.Company or to the extent required to maintain REIT status. If cash flowflows from operations and the revolving credit facilityRevolving Credit Facility are not adequate to meet liquidity requirements, the Company may utilize additional financing sources to make distributions. Although the Company has relatively low levels of debt, there can be no assurancesassurance it will be successful with this strategy, and it may need to reduce its distributions to minimum levels required levels.to maintain its qualification as a real estate investment trust. If the Company were unable to extend its maturing debt in future periods or if it were to default on its debt, it may be unable to make distributions.
Share Repurchases
In connection withMay 2023, the implementationCompany’s Board of the ATMDirectors approved a one-year extension of its existing share repurchase program, authorizing share repurchases up to an aggregate of $338.7 million. The Share Repurchase Program in February 2017may be suspended or terminated at any time by the Company and will end in July 2024 if not terminated its existing written trading plan underor extended earlier. During the Company’s share repurchase program. In January 2016,nine months ended September 30, 2023, the Company purchased, under its share repurchase program,Share Repurchase Program, approximately 20,0000.5 million of its common shares at a weighted-average market purchase price of approximately $18.10$14.34 per common share for an aggregate purchase price, including commissions, of approximately $0.4$6.9 million. The shares were repurchased in open market transactions under the Share Repurchase Program, including pursuant to written trading plans intended to comply with Rule 10b5-1 under the Exchange Act. Repurchases under the Share Repurchase Program have been funded, and the Company did not repurchase anyintends to fund future repurchases, with cash on hand or availability under its unsecured credit facilities, subject to applicable restrictions under the Company’s unsecured credit facilities (if any). The timing of share repurchases and the number of common shares under its share repurchase program during the first nine months of 2017.
Capital Improvements
Management routinely monitors the condition and operations of its hotels and plans renovations and other improvements as a result of an extension of the program approved by the Board of Directors in May 2017, will end in July 2018 if not terminated earlier.
Upcoming Debt Maturities and Debt Service Payments
As of September 30, 2017,2023, the Company had approximately $175.4 million of principal and interest payments due on its debt over the next 12 months. Included in this total is an $85.0 million term loan and a mortgage loan of approximately $20.5 million, both maturing in the third quarter of 2024. The Company plans to pay outstanding amounts and service payments due upon the upcoming debt maturity dates using funds from operations, borrowings under its Revolving Credit Facility and/or proceeds from new financing, refinancing or loan extensions. Interest expense related to the Company’s unsecured credit facilities is expected to be higher over the next 12 months than it was during the previous 12 months as a result of increases in market interest rates on its variable-rate debt and increased borrowings on its Revolving Credit Facility. See Note 4 titled “Debt” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q for more detail regarding future maturities of the Company’s debt instruments as of September 30, 2023.
Purchase Contract Commitments
As of September 30, 2023, the Company had separate outstanding contracts for the potential purchase of four additionalsix hotels as well as one free-standing parking garage for a total combined purchase price of approximately $146.1$359.0 million. TwoFive of the seven properties under contract are existing. The Company completed the purchase of four of the existing properties, including two hotels theand one free-standing parking garage in Salt Lake City, Residence InnUtah and one hotel in Renton, Washington on October 11, 2023 and October 18, 2023, respectively. See Note 9 titled “Subsequent Events” in the Portland Residence Inn, whichCompany’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, for more information. The Company plans to complete the purchase of the one remaining existing property in the fourth quarter of 2023. The other two purchase contracts are already in operation, were acquired in October 2017. The two remainingfor hotels are under construction and aredevelopment, with the Madison, Wisconsin hotel currently planned to be completed and opened for business overin mid-2024 and the next 12 months from September 30, 2017,Nashville, Tennessee hotel currently planned to be completed and opened for business in 2025, at which time closing onrespective times the Company expects to complete the purchases of these hotels is expected to occur.hotels. Although the Company is working towards acquiring these hotels,completing the acquisitions of the three remaining properties, in each case there are manya number of conditions to closing that have not yet been satisfied, and there can be no assurance that a closingclosings on these hotelsproperties will occur under the outstanding purchase contracts. The purchase price for eachIf the sellers meet all of the Salt Lake City Residence Inn
33
conditions to closing, the Company is obligated to specifically perform under the applicable purchase contracts and Portland Residence Inn was funded throughacquire these properties. The Company plans to utilize its available cash or borrowings under its unsecured credit facilities available at closing to purchase the Company’s revolving credit facility and it is anticipated that the purchase price for the remaining outstanding contracts will be funded similarly.
Cash Management Activities
As part of the cost sharing arrangements discussed in Note 76, titled “Related Parties” in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, certain day-to-day transactions may result in amounts due to or from the Company and Apple Realty Group, Inc. (“ARG”).ARG. To efficiently manage cash disbursements, the Company or ARG may make payments for the other company. Under the cash management process, each company may advance or defer up to $1 million at any time. Each quarter, any outstanding amounts are settled between the companies. This process allows each company to minimize its cash on hand and reduces the cost for each company. The amounts outstanding at any point in time are not significant to either of the companies.
Business Interruption
Being in the real estate industry, the Company is exposed to natural disasters on both a local and national scale. Although management believes there isthe Company has adequate insurance to cover this exposure, there can be no assurance that such events will not have a material adverse effect on the Company’s financial position or results of operations.
Seasonality
The hotel industry historically has been seasonal in nature. Seasonal variations in occupancy at the Company’s hotels may cause quarterly fluctuations in its revenues. Generally, occupancy rates and hotel revenues for the Company’s hotels are greater in the second and third quarters than in the first and fourth quarters. However, due to the effects of COVID-19, these typical seasonal patterns have been disrupted in recent years. In the first quarter of 2022, the Company experienced lower than expected operating results due to the Omicron variant of COVID-19 along with the typical seasonal decrease associated with the first quarter. Since that time, the seasonal variability has recovered to its pre-COVID-19 trend. To the extent that cash flow from operations is insufficient during any quarter due to temporary or seasonal fluctuations in revenue, the Company expects to utilize cash on hand or available financing sources to meet cash requirements.
Critical Accounting Standards
The preparation of Significant Accounting Policies”the Company’s financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the Company’s financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the Company’s Unaudited Consolidated Financial Statements and Notes thereto, appearing elsewherethereto. The Company has discussed those policies and estimates that it believes are critical and require the use of complex judgment in this Quarterlytheir application in the Company’s Annual Report on Form 10-Q10-K for informationthe year ended December 31, 2022, filed with the Securities and Exchange Commission on February 21, 2023. There have been no material changes to the adoption ofCompany’s critical accounting standards inpolicies or the first nine months of 2017 and the anticipated adoption of recently issued accounting standards.
Subsequent Events
On October 2017,11, 2023, the Company completed the purchase of two existing hotels and an existing free-standing parking garage in Salt Lake City, Utah, including a 175-room Courtyard and a 159-room Hyatt House, for a combined gross purchase price of approximately $91.5 million. The Company utilized its available cash on hand and borrowings under its Revolving Credit Facility to purchase the properties.
On October 16, 2023, the Company paid approximately $22.3$18.3 million, or $0.10$0.08 per outstanding common share, in distributions to shareholders of record as of September 29, 2023.
On October 18, 2023, the Company completed the purchase of the existing 146-room Residence Inn in Renton, Washington for a total gross purchase price of $55.5 million. The Company utilized its common shareholders.
On October 2017,19, 2023, the Company declared a regular monthly cash distribution of $0.10$0.08 per common share for the month of November 2017.share. The distribution is payable on November 15, 2017.
34
As of September 30, 2017,2023, the Company’s financial instruments were not exposed to significant market risk due to foreign currency exchange risk, commodity price risk or equity price risk. However, the Company is exposed to interest rate risk due to possible changes in short term interest rates as it invests its cash or borrows on its revolving credit facilityRevolving Credit Facility and due to the portion of its variablevariable-rate term debt that is not fixed by interest rate term loan.swaps. As of September 30, 2017,2023, after giving effect to interest rate swaps, as described below, approximately $319.2$275.0 million, or approximately 24%20% of the Company’s total debt outstanding, was subject to variable interest rates. Based on the Company’s variable ratevariable-rate debt outstanding as of September 30, 2017,2023, every 100 basis points change in interest rates will impact the Company’s annual net income by approximately $3.2$2.8 million, all other factors remaining the same. With the exception of interest rate swap transactions, the Company has not engaged in transactions in derivative financial instruments or derivative commodity instruments. The Company’s cash balance at September 30, 2017 was $0.
As of September 30, 2017,2023, the Company’s variable ratevariable-rate debt consisted of its $540 million revolvingunsecured credit facilityfacilities, including borrowings outstanding under its Revolving Credit Facility and six$1.0 billion of term loans totaling $660 million.loans. Currently, the Company uses interest rate swaps to manage its interest rate risk on a portion of its variable ratevariable-rate debt. As of September 30, 2017,2023, the Company had six13 interest rate swap agreements that effectively fix the interest payments on approximately $557.5$695.0 million of the Company’s variable ratevariable-rate debt outstanding (consisting of five term loans) through maturity.with swap maturity dates ranging from January 2024 to December 2029. Under the terms of all of the Company’s interest rate swaps, the Company pays a fixed rate of interest and receives a floating rate of interest equal to the one month LIBOR.
In addition to its variable ratevariable-rate debt and interest rate swaps discussed above, the Company has assumed or originated fixed interest rate mortgages payable to lenders under permanent financing arrangements.arrangements as well as two fixed-rate senior notes facilities totaling $125 million. The following table summarizes the annual maturities and average interest rates of the Company’s mortgage debt the six term loans and borrowings outstanding under the $540 million revolvingits unsecured credit facilityfacilities at September 30, 2017.2023. All dollar amounts are in thousands.
|
| October 1 - December 31, 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| Thereafter |
|
| Total |
|
| Fair |
| ||||||||
Total debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Maturities |
| $ | 2,245 |
|
| $ | 113,597 |
|
| $ | 295,140 |
|
| $ | 74,649 |
|
| $ | 278,602 |
|
| $ | 616,014 |
|
| $ | 1,380,247 |
|
| $ | 1,316,664 |
|
Average interest rates (1) |
|
| 4.3 | % |
|
| 4.7 | % |
|
| 5.0 | % |
|
| 5.3 | % |
|
| 5.3 | % |
|
| 5.0 | % |
|
|
|
|
|
| ||
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Variable-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Maturities |
| $ | - |
|
| $ | 85,000 |
|
| $ | 225,000 |
|
| $ | - |
|
| $ | 275,000 |
|
| $ | 385,000 |
|
| $ | 970,000 |
|
| $ | 967,526 |
|
Average interest rates (1) |
|
| 4.5 | % |
|
| 4.9 | % |
|
| 5.5 | % |
|
| 5.8 | % |
|
| 5.9 | % |
|
| 5.6 | % |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Fixed-rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Maturities |
| $ | 2,245 |
|
| $ | 28,597 |
|
| $ | 70,140 |
|
| $ | 74,649 |
|
| $ | 3,602 |
|
| $ | 231,014 |
|
| $ | 410,247 |
|
| $ | 349,138 |
|
Average interest rates |
|
| 4.1 | % |
|
| 4.1 | % |
|
| 4.0 | % |
|
| 4.0 | % |
|
| 4.1 | % |
|
| 4.1 | % |
|
|
|
|
|
| ||
October 1 - December 31, 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | Fair Market Value | |||||||||||||||||||||||||
| Total debt: | ||||||||||||||||||||||||||||||||
| Maturities | $ | 2,701 | $ | 11,071 | $ | 248,408 | $ | 451,164 | $ | 95,311 | $ | 498,181 | $ | 1,306,836 | $ | 1,307,025 | ||||||||||||||||
| Average interest rates | 3.5 | % | 3.5 | % | 3.5 | % | 3.8 | % | 4.0 | % | 4.0 | % | ||||||||||||||||||||
| Variable rate debt: | ||||||||||||||||||||||||||||||||
| Maturities | $ | - | $ | - | $ | 216,700 | $ | 425,000 | $ | 50,000 | $ | 185,000 | $ | 876,700 | $ | 877,783 | ||||||||||||||||
| Average interest rates (1) | 3.0 | % | 3.0 | % | 3.0 | % | 3.1 | % | 3.3 | % | 3.4 | % | ||||||||||||||||||||
| Fixed rate debt: | ||||||||||||||||||||||||||||||||
| Maturities | $ | 2,701 | $ | 11,071 | $ | 31,708 | $ | 26,164 | $ | 45,311 | $ | 313,181 | $ | 430,136 | $ | 429,242 | ||||||||||||||||
| Average interest rates | 4.5 | % | 4.5 | % | 4.5 | % | 4.5 | % | 4.4 | % | 4.3 | % | ||||||||||||||||||||
Senior management, including the Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation process, the Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.2023. There have been no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
The Company is or may be a party to various legal proceedings that arise in the ordinary course of business. The Company is not currently involved in any litigation nor, to management’s knowledge, is any litigation threatened against the Company where the outcome would, in management’s judgment based on information currently available to the legal proceedings previously disclosed inCompany, have a material adverse effect on the Company’s Annual Report on Form 10-K forconsolidated financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of all share repurchases during the year ended December 31, 2016 (the “2016 Form 10-K”) except as described in Note 10 titled “Legal Proceedings” inthird quarter of 2023.
Issuer Purchases of Equity Securities |
| |||||||||||||||
|
| (a) |
|
| (b) |
|
| (c) |
|
| (d) |
| ||||
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (1) |
| ||||
July 1 - July 31, 2023 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 335,495 |
| |
August 1 - August 31, 2023 |
|
| 3,374 |
|
| $ | 14.49 |
|
|
| 3,374 |
|
| $ | 335,446 |
|
September 1 - September 30, 2023 |
|
| - |
|
| - |
|
|
| - |
|
| $ | 335,446 |
| |
Total |
|
| 3,374 |
|
|
|
|
|
| 3,374 |
|
|
|
| ||
During the three months ended September 30, 2023, no director or officer of the Company’s potential risks and uncertainties, see the section titled “Risk Factors”Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in the 2016 Form 10-K
36
Exhibit Number | Description of Documents | |
3.1 | ||
3.2 | ||
31.1 | ||
31.2 | ||
31.3 | ||
32.1 | ||
101 | The following materials from | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted as Inline XBRL and contained in Exhibit 101. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Apple Hospitality REIT, Inc. | |||||
By: | /s/ Justin G. Knight | Date: November | |||
Justin G. Knight, | |||||
Chief Executive Officer (Principal Executive Officer) | |||||
By: | /s/ | Date: November | |||
Elizabeth S. Perkins, | |||||
Chief Financial Officer (Principal Financial | |||||
By: | /s/ Rachel S. Labrecque | Date: November 7, 2023 | |||
Rachel S. Labrecque, | |||||
Chief Accounting Officer (Principal Accounting Officer) | |||||
38